Joshua Tucker

Joshua Tucker is a professor of Politics at New York University with an affiliate appointment in the Department of Russian and Slavic Studies and New York University-Abu Dhabi. His major field is comparative politics with an emphasis on mass politics, including elections and voting, the development of partisan attachment, public opinion formation, and, political protest.

Recent Articles

Diplomacy in the You Tube Age

Meet the US’s new Ambassador to Russia (and political science’s own!) Michael McFaul:

The response of the Russian authorities? Not nearly as welcoming…

Euro Crisis Part XVII: Boardgame Edition

In this exciting new version, the value of the properties go down once you buy them and the bank has no money….

Getting the Facts Straight: Payroll Tax Edition

From Princeton political scientist Nolan McCarty’s blog:

For me at least, one of the frustrations about the debate over extending the cut in the payroll tax is extent to which politicians have tried to exploit the public’s lack of understanding about how the Social Security system works.

The first lie is the Republican claim that extending the payroll tax will somehow deprive the Social Security system of funds and jeopardize the retirement security of seniors.

Democrats have responded not with the truth but with the claim that the revenue losses from the extension will be offset by “general revenue.”

Understanding why both of these claims are untrue requires some background knowledge of how Social Security works.

Social Security is a pay-as-you-go system where current retirees are supported by the payroll tax payments of current workers. When I pay payroll taxes, they do not go into some account with my name on it, they go to my mother-in-law. Every year since 1984, the payroll tax revenues plus interest on the SS Trust Fund’s holding of treasury notes has exceeded the benefits paid out. The Trust Fund then exchanges this surplus for more treasury bills and the federal government spends it.

In 2010, the Trust Fund surplus was $94 billion or about 16% of the benefits paid. That is about the same size as the revenue short fall from the 2 point reduction in the payroll tax rate (the SS Trustees estimate a loss of about $90b for 2011). So even with this loss, payroll taxes and interest will cover the benefits paid. So one of two things will happen. The Treasury will actually give $90b to the Trust Fund. But because it is surplus, the Trust Fund will give it right back to Treasury in exchange for government debt. Or it could be handled the easy way: Treasury would just give the Trust Fund $90 billion in Treasury notes.

The important point is that the effect of the payroll tax cut on the balance sheet of the Social Security Trust Fund is exactly zero. With or without the cut in 2011, the Fund would increase its holding of U.S. government debt by over $90 billion. Even if the government did not give the Trust Fund the $90 billion worth of debt, the effects would not be felt until around 2035 when the Trust Fund is expected to be exhausted.

Thus the Republican claims have no merit.

I’ll admit the Democratic shading of the truth is less egregious. It is easier to say that general revenue will cover lost payroll tax revenue than it is to explain that the government will only promise to pay it back later by issuing more debt. But I do think, the Democratic rejoinder is problematic on two accounts.

First, it seems to suggest that the current funding of Social Security is more perilous than it really is. It would have been more comforting to point out that the system takes in so much money that it could pay out all promised benefits even with the lost revenue.

Second, the Democrats missed an opportunity to raise the public’s understanding of the longer-term problems with Social Security. The years of surplus will come to an end at some point. Already (and independent of any payroll tax cuts), benefit payments exceed payroll tax revenues so that the surplus is being generated by interest on government debt. At some point in the next decade, tax revenues plus interest will no longer be enough and the system will have to start redeeming its $2.5 trillion stash of Treasury notes. At this point, general revenues will indeed start flowing out to Social Security recipients, placing increasing strain on the federal budget that will also be coping with escalating Medicare costs.

Actually, Iowa is Extremely Representative in Terms of its Economy!

We are once again pleased to welcome back Professor Michael Lewis-Beck of the University of Iowa, with the following guest post suggesting that Iowa – far from being atypical in terms economic conditions – is actually the most “representative” state in the country in this regard!

Before every presidential campaign, there is intense discussion over whether Iowa should retain its “first in the nation” status, in terms of the presidential nomination process. Often media commentators argue that it does not deserve this status. The current front page comments by A.G. Sulzberger (New York Times, December 18, 2011, p.1) are illustrative, asserting Iowa “is an odd staging ground for an election that is often said to be all about jobs and the economy,” since the Iowa economy is decidedly atypical. But is this assessment objectively so, when a comprehensive systematic battery of economic indicators for the American states is examined? Is Iowa an outlier, a decidedly unrepresentative American state in terms of the critical economic dimension? Not at all, according to research Peverill Squire and I have conducted (Lewis-Beck and Squire, 2009). Indeed, Iowa appears to be more representative of the mix of economic forces operating within a state than any other. Below, I explain why.

DATA AND METHODOLOGY

In our data-gathering, we aimed for an exhaustive collection of relevant and available measures on the economic, social, and political aspects of life in the American states, as culled from reliable documentary sources, such as the Census Bureau. We located fifty-one such indicators, and subjected them to a factor analysis, a simple principal components extraction with varimax rotation . Three factors – Economics, Social Problems, Diversity – were extracted, together accounting for the majority of the variance in the data-set. Of the three factors, Economics was clearly strongest, accounting for almost twice the variance of the next nearest dimension. According to the factor loadings (> .7 ), the Economics dimension is dominated by average pay, per capita income, median household income. Also, indicators on unemployment, gross state product, energy consumption, home ownership, and mobile homeownership contributed to determining the factor, falling near its mean value.

HYPOTHESIS TEST: IOWA, THE ECONOMIC REPRESENTATIVE

Theoretically, if Iowa is a “perfectly” representative state economy, it should register a “typical” score on the factor: more specifically, it should score at the mean. Given the factor scores (Z) are normed to a zero mean, the alternative hypotheses are expressed as follows:

H0: Z = 0, Representative
H1: Z ≠ 0, Not Representative.

To test the hypotheses we observed how far the Iowa score deviated from the zero mean, in comparison to the other states.

FINDINGS

Perhaps surprisingly, the Iowa score (-.02) rests virtually at zero, and nearer that ideal representative point than any other state. (Its rival in “first in the nation status,” New Hampshire, lies away and in the other direction, at .26). On the economic dimension, then, the Iowa representation hypothesis is fully sustained. Once state economies are measured by multiple relevant indicators, Iowa is most representative of all the states. Its cross-section of economic forces, especially within the controlled context of the socio-political factors, best mirrors the general strengths and weaknesses at work in an American state economy. If one state must lead the presidential candidate selection process, then Iowa seems an ideal selection in terms of the economy. Identification of the preferred “first state” with respect to the economic dimension seems paramount, given the abiding importance of the economy for the vote generally in American elections (Lewis-Beck and Stegmaier 2007).

REFERENCES
Lewis-Beck, Michael S., and Peverill Squire. 2009. “Iowa: The MostRepresentative State?,” PS: Political Science and Politics, Vol. 42 (1) 2009,pp.39-44.

Lewis-Beck, Michael S. and Mary Stegmaier. 2007. “Economic Models of Voting.” In Oxford Handbook of Political Behavior, eds., Russell Dalton and Hans-Dieter Klingemann. New York: Oxford University Press.

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