Why you should care
American systems for infrastructure funding, mortgages and college savings are all broken. These fixes could make a big difference in our homes, our cities and our children’s futures.
This is the second in a three-part series examining Washington at work.
Everyone who runs for American political office these days promises to “shake up” the system and take on the Man. While achieving that is rare, hopes are kept alive by some particularly determined policymakers who keep trying.
In fact, below most people’s radar are vigorous discussions that could remake whole sectors of the American economy and society. Not tomorrow, but perhaps eventually. And much of it is remarkably bipartisan.
OZY has told you about some of the action happening in Washington this year. Now, we examine a few big bipartisan policy ideas farther out on the horizon.
So Long, Fannie and Freddie?
The federal government rescued the two public mortgage lending giants, Fannie, aka the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corporation, in 2008, during the depths of the financial crisis. Six years later, they’re stuck in conservatorship, as Congress, bureaucrats and the mortgage industry fight over just how to restructure the housing finance system. At the heart of the debate: What should government’s role be in helping people buy homes? Housing construction alone averaged 4.5 percent of American GDP before the financial crisis, so the debate has huge impact.
A group of senators from both parties has offered one answer: legislation that strikes a middle ground between those on the left who want government to take a muscular tact to ensure lower income workers and minorities can get home loans, and those on the right who want government out of the mortgage business entirely.
The biggest change, at least symbolically, is that it would chuck the 76-year-old Fannie and 44-year-old Freddie entirely. Instead, it would create a new government regulator that would also guarantee qualifying private mortgage securities — essentially allowing the private sector to play a bigger role while keeping the government in the role of ultimate loan guarantor.
It would also add new rules aimed at preventing the sort of reckless private-sector behavior that created last decade’s mortgage bubble in the first place.
It’s the sort of compromise proposal that didn’t make any of the various stakeholders entirely happy, and ultimately it failed to win enough support to move forward in Congress this spring. If Congress remains gridlocked over the coming years, the White House may have to step in. Fannie and Freddie could ultimately get a second life. But this Senate proposal has moved the ball forward in a significant way.
America’s Bridges Are Falling Down, Falling Down
Roads, bridges, wastewater pipes and dams are things we rely on every day but rarely think about. We probably should start. According to the American Society for Civil Engineers, America’s bridges are 42 years old, on average, our dams, 52 years old, and our country needs to invest $3.6 trillion by 2020 to modernize our public infrastructure. There’s no way our government is going to muster that kind of cash alone, but Rep. John Delaney (D-Md.) and a bipartisan group of his peers think they might be able to persuade private companies to pitch in.
The idea is to partner the public and private sectors to create an infrastructure fund — not a new concept — on its own. What is new is the incentive Delaney and his fellow bill sponsors want to offer to companies: allowing them to repatriate a percentage of the profits they make overseas, tax-free, for every dollar they invest in the fund. The hope is that by pairing the GOP priority of allowing U.S. companies to bring home some of their trillions in offshore earnings, untaxed, and the Democratic one of helping cities and states do much-needed repairs on highways, sewers and the like, backers could win enough support to pass the law and help solve a looming domestic crisis without spending a dime of federal money.
Not everyone loves the idea: Critics of corporations’ offshore tax dodging, for example, say it would just reward bad behavior. But policy minds of varying stripes have cheered the innovative thinking. Longtime Congress watcher Norm Ornstein of the center-right American Enterprise Institute recently dubbed it “a win-win” policy — not something you hear very often in Washington.
More Ways to Pay for College
Politicians in Washington are finally starting to work on ways to make student loan burdens more manageable. But what if students and their families didn’t have to take on so much debt?
Researchers at the center-left think tank Center for American Progress point out that just 3 percent of American families are taking advantage of an existing tax-free college savings plan, known as the “529 plan” for its section of the tax code. And, the researchers note, 70 percent of families who do use the plans earn over $100,000 a year, making them likely to save for college, anyway.
In a policy memo released Monday while the president gave remarks on higher education costs, the White House acknowledged that “hundreds of millions of dollars of education credits go unclaimed each year,” and pledged to do more to help educate students, families and financial aid administrators.
But the CAP report goes further, urging the federal government to simplify the tax code to streamline the 529 plan and other college savings benefits into one universal credit, to replace a variety of confusing tax breaks. And they want the government to do the same for the tax benefits people receive while paying for college. This would make more people likely to take advantage of them, and would offer a bigger boost to low earners, who pay little income tax and thus don’t benefit as much from deductions. Other policy researchers have also urged better use of the tax code to help low-income families pay for college.
As it turns out, Washington isn’t so bereft of bipartisan policy solutions, just the political will to make them happen. If the outcry grows loud enough beyond the Beltway, however, you never know … we just might see our government move forward with some of these proposals.