In 2014, a deluge of new research generated debate within the policy community that fueled many reform proposals. Here is a look back at the year in domestic policy.
1st quarter: Poverty
January 2014 marked the 50th anniversary of the war on poverty. The anniversary drove reviews of welfare programs and inspired reform proposals. A White House progress report of the war on poverty declared it a success and called for strengthening welfare programs such as Social Security, food stamps and the Earned Income Tax Credit, among others.
On the other hand, many conservatives said the war on poverty was lost. Heritage Foundation senior fellow Robert Rector said welfare spending is 16 times higher today than it was in 1964, after adjusting for inflation, with no success at alleviating poverty. Manhattan Institute senior fellow Scott Winship, a more centrist supporter of free markets, said the United States won the war on poverty but not strictly because of government programs. Rather, poverty fell in the 1990s because of economic growth and welfare reforms that promoted work.
House Budget Committee Chairman Paul Ryan, R-Wis., eventually released a draft proposal to consolidate food stamps, Temporary Assistance for Needy Families, housing subsidies, and other welfare programs.
The poverty rate today is roughly equal to what it was in the 1960s, according to Census Bureau estimates. However, these estimates are flawed because they do not account for benefits such as food stamps, public housing, and government health programs. Measuring poverty by consumption, rather than income, shows that poverty has declined 26.4 percent since 1960.
2nd quarter: Inequality
Capital in the Twenty-First Century, the anti-capitalist tome by French economist Thomas Piketty, was released in April 2014. Piketty’s research fueled arguments about the effects of inequality on economic growth, whether high levels of wealth should be subject to a global tax, and whether Piketty’s data showing rising inequality were accurate. Piketty’s primary thesis said inequality rises when the rate of return on capital is greater than the rate of economic growth.
The book provoked a sharp response from the Right and gained adoring fans on the Left. Paul Krugman called it a “magnificent, sweeping meditation on inequality,” while multiple commentators on the Right said Piketty’s work reminded them of Karl Marx. The Financial Times’ Chris Giles made waves when he exposed data issues in Piketty’s work.
Piketty’s income data were measured before taxes were collected and government benefits paid out. They also did not include employee benefits such as health insurance. Accounting for these factors shows a 31 percent increase in income for the poorest fifth of Americans, contrary to Piketty’s 33 percent decline from 1979 to 2007. Piketty’s income data also don’t account for the rise in two-earner households. On average, the highest fifth of income earners has two workers in each household. This reflects the rise of women in the labor force.
For all his work’s shortcomings, Piketty still managed to drive the policy debate for much of 2014.
3rd quarter: Infrastructure
Imminent depletion of the federal Highway Trust Fund loomed as 2014 entered its second half. On Aug. 1, barring some sort of extension, the U.S. Department of Transportation would be forced to cut construction spending by 28 percent, which would have forced delays on highway projects in the states. Unable to reach a long-term deal to fund government infrastructure, Congress instead settled on a short-term fix using accounting gimmicks to keep money flowing.
The third quarter was also characterized by a rapid drop in retail gas prices. Average gas prices fell 34 cents a gallon in three months. Now gas prices are at their lowest price since May 2009, after adjusting for inflation. The drop in gas prices is great for consumers, but it also leaves government with less money for infrastructure development as gas tax revenues decline.
The Highway Trust Fund is now expected to run out of money May 31. Many have suggested now is the right time to raise the federal gas tax, since gas prices are so low. Others say the federal government should devolve the Highway Trust Fund directly to the states, which are welcome to raise transportation revenue however they wish.
4th quarter: Immigration
President Obama announced an executive order on immigration soon after Democrats suffered heavy losses in the midterm elections. His unilateral action will allow up to about 5 million undocumented immigrants to apply for temporary legal status, pending a background check and payment of fees. Immigrants with children who are legal residents may apply.
Republicans attacked Obama’s action as unconstitutional, while Democrats were quick to cite executive action on immigration by Presidents Reagan and H.W. Bush. Conservative constitutional scholars claimed that Obama’s action was different and did not adhere to the law.
Activists hoping for comprehensive immigration reform said Obama’s executive order killed hope of convincing Republicans in Congress to compromise and pass immigration legislation. While Obama said his executive order would keep families together, critics said it will delay families hoping to immigrate legally while rewarding those who skipped the line.
The debate will extend into 2015, since funding for the Department of Homeland Security is scheduled to expire Feb. 27. Republicans will try to alter funding for the department to effectively nullify Obama’s executive action.
As 2014 comes to a close, neither liberals nor conservatives can claim they won any of these policy debates, but the same issues are sure to be studied and argued about in the year to come.
