Not Polarization, Asymmetry: Party Positions and the Political Compromise of Earned Income Tax Credits
Alexander Hertel-Fernandez and Vanessa Williamson
Harvard University
May 10, 2014
NOT FOR CITATION
We examine how the distribution of party ideological positions affects legislatures’ capacity to produce compromise legislation – in particular, one of the United States’ most significant bipartisan social policy compromises, the Earned Income Tax Credit. We depart from the current literature by arguing that it is not partisan polarization that is responsible for causing stalemate on this issue. Rather, the asymmetry in party ideologies matters more than the ideological distance between the parties in explaining the success of this traditionally bipartisan proposal. Our results have important implications for the study of party ideology and social policy development, and suggest that ideological asymmetry needs to be considered as an important factor in legislative gridlock.
Keywords: tax policy, social policy, state politics, party polarization
Word Count: 8261 words Perhaps no other trend in American politics has received as much attention in recent years as the polarization of the political parties. Politicians, pundits, and journalists regularly blame polarization for producing rancorous politics, gridlocking Congress, and alienating moderate voters. Political scientists, for their part, have devoted substantial energy to understanding the trends of polarization over time, its presence in different arenas of politics, its sources, and its consequences (e.g. Layman, Carsey, and Horowitz 2006; McCarty, Rosenthal, and Poole 2006; Mansbridge and Martin 2013).
There is still little consensus on many of these issues, however, especially on whether polarization affects Congress’s ability to pass legislation. There are good theoretical reasons to think that polarization will reduce productivity during periods of divided government. If the parties are ideologically distant from one another, according to this logic, there will be less room for agreement, and perhaps greater incentive to engage in brinksmanship. Yet as a recent task force report from the American Political Science Association has noted: “[d]espite the strong theoretical case for a relationship between polarization and policy gridlock, few scholars have addressed the issue” (Barber and McCarty 2013; but see Binder 1999; Sinclair 2006; McCarty
2007).
In this paper, we examine how the distribution of party ideological positions shapes legislators’ ability to craft significant policy compromises. We depart from the current literature by arguing that it may not be polarization per se that is responsible for causing stalemate. Rather, the asymmetry in party ideologies – the extent to which one party is more extreme than the other
– matters more than the distance between the parties, at least in one important area of tax and social policy. Although some scholars have drawn attention to the unequal polarization of the two parties – pointing out that the Republicans have become much more ideologically extreme
1 than the Democrats (Hacker and Pierson 2006; McCarty, Rosenthal, and Poole 2006; Mann and
Ornstein 2012) – we believe that the implications of this imbalance for the substance of policymaking have not been sufficiently explored.
We test the effects of polarization and party asymmetry on a policy area that has long been considered a model of compromise legislation: the earned income tax credit, or EITC. The
EITC, a tax credit for working poor families, is a policy that combines a strong anti-poverty effect, appealing to economic liberals, with an incentive to work and a tax reduction, attractive to economic conservatives. First proposed by Republicans, the federal EITC has repeatedly been expanded by bipartisan coalitions, and is now one of the most important antipoverty programs in the United States. In 2012, the EITC reached over 27 million taxpayers – nearly one in eleven
Americans – and lifted 6.6 million people out of poverty (Greenstein and Wancheck 2011).
Social policy scholars have argued that partisan polarization encourages policies like the EITC because it is a compromise measure that can appeal to both parties (e.g. Howard 1995;
Gitterman, Cotton, and Howard 2003). The EITC also makes for an interesting case given its unusual status as a relatively progressive tax expenditure. As authors such as Suzanne Mettler
(2011), Christopher Howard (2007), and Jacob Hacker (2002) have all noted, most of the
“hidden” or “submerged” welfare state delivered through the tax code disproportionately benefits better-off households. It is thus an open question whether traditional theories of social benefit generosity, such as the power resources of the left and labor, can explain the politics of the EITC.
We can assess the effect of party positions on this bipartisan policy deal by looking at the creation of state level EITCs. Twenty-five states and the District of Columbia have enacted their
2 own versions of the EITC as of 2012, reaching over 9 million families in the 2009 tax year.1 We ask whether states’ decisions to adopt an EITC can be explained by the extent and nature of polarization in the legislature. The states offer an interesting opportunity to test the effect of this variation, because some states have seen a great deal of ideological polarization, while others have not, and some states’ polarization has been balanced across the two parties, while in others one party is more ideologically extreme than the other. In short, looking to the states permits us to distinguish between, and examine the effects of, these two previously conflated dimensions of partisan ideological alignment: the ideological distance between the parties and the asymmetry of the parties’ ideological positions.
We find that neither polarization, as it is traditionally defined, nor conventional welfare state theories can adequately explain state EITC adoption. Rather, the key factor explaining the adoption of this compromise policy is the degree to which the Republican party is more extreme than the Democrats. Note the distinction between asymmetry and conservatism; asymmetry is the relative conservativeness of a state’s Republican legislators compared to the state’s
Democrats, not the overall conservatism of the Republicans. Regardless of the level of polarization, states where Republicans were the more ideologically extreme party were less likely to adopt EITCs, especially when those ideologically extreme Republicans controlled at least one branch of government. In short, the asymmetry of state political party ideology mattered more than the distance between the parties (the traditional measure of polarization).
1 We thank the 29 policymakers and journalists from ten states who participated in interviews on the origins and development of state EITCs. A complete list of our interviews is available in the supplementary materials. Our conclusions and any mistakes are our own.
3 Our results shed new light on the origins of one of America’s most significant anti- poverty policies, and carry several broader implications for research on party polarization and public policy. Most centrally, this paper suggests that scholars should reconsider how they conceptualize and measure polarization. In particular, scholars should consider ideological asymmetry both as a potential variable for explaining policy outcomes, and an outcome in its own right. Moreover, our results show that substantial insights on partisan alignment can be gained by shifting attention away from the federal government to the states. While partisan polarization at the national level has been driven by Republicans moving to the right, there is much more variation across the states. As our paper demonstrates, this state level variation in party alignment provides a fruitful way to disentangle the separate effects of polarization and ideological asymmetry.
Unpacking Polarization: Ideological Distance versus Ideological Asymmetry
For decades, political scientists have debated the level of polarization between America’s partisans (Hetherington 2001; Fiorina, Abrams, and Pope 2010; Abramowitz 2012). There is now widespread agreement that the contemporary federal Congress is extremely polarized, with a level of ideological distance between the parties not seen since the Civil War (McCarty,
Rosenthal, and Poole 2006): “[a] growing body of empirical research shows that the parties in government, particularly those in Congress, are each growing more homogeneous in their policy positions, while the differences between the two parties’ stands on major policy issues are expanding” (Layman et al. 2006). Other work has also sought to examine whether there is a corresponding shift in the mass public, and if so, whether growing mass polarization is either a
4 cause or a consequence of the trends at the elite level (for a review, see Barber and McCarty
2013).
Perhaps surprisingly, there are only a few studies that have examined whether and how polarization affects the capacity of legislators to produce policy. This work, perhaps most prominently by Sarah Binder (1999), Nolan McCarty (2007), and Barbara Sinclair (2006), has generally focused on a single definition of polarization, the ideological distance between the parties, and has found evidence to support the idea that greater polarization in Congress reduces legislative productivity. But crucially, this literature does not address what aspects of partisan ideological alignment matter for policy compromise.
One reason for this gap in the literature has been the limits of available data. Until recently, polarization data in the United States was primarily available for the federal Congress.
With only one legislative body, it was difficult to determine what aspects of polarization were shaping policy outcomes. We could not answer, for instance, whether more balanced polarization, in which both parties moved to the poles, would have the same impact as polarization skewed to the right or left.
This is important because political polarization is considerably tilted to the right at the national level (Hacker and Pierson 2006; McCarty, Rosenthal, and Poole 2006; Mann and
Ornstein 2012). Republicans have become much more conservative than Democrats have become liberal. This asymmetry has also been observed among activists and the mass public
(Ura and Ellis 2012). Aside from documenting this asymmetry, scholars have characterized the imbalance in party positions as a cause of institutional gridlock in its own right. Describing the
Republican Party, Mann and Ornstein (2012) argue, for instance, that “[w]hen one party moves this far from the center of American politics, it is extremely difficult to enact policies responsive
5 to the country’s most pressing challenges” (xvi). But the existing literature has not rigorously tested this hypothesis.
We can generalize beyond the specific case of the national Republican Party to consider how ideological asymmetry – independent of the overall level of polarization – might inhibit policy compromises. Drawing on the work of John Gilmour (1995), there are at least three related reasons why asymmetry, rather than polarization, might cause gridlock. First, an ideologically extreme party might have developed an image of strength or purity rooted in a reluctance to compromise, particularly with a more moderate party perceived as weak or corrupt
(e.g. Sartori 2005); this may hamper bipartisan deal-making if the party thinks that conceding ground will damage their carefully crafted image. Relatedly, members of an ideologically extreme party may fear retribution for a compromise with a more moderate party from either their voters (as argued by Gilmour) or by organized policy demanders that are supporting the party (such as interest groups; as argued by Karol 2010, for instance). Lastly, more ideologically extreme parties might be prone to overestimating their electoral strength relative to a more moderate party, and thus prefer to hold out for a future where they have sufficient political control to enact their legislative agenda without a need for compromise (see also Binder and Lee
2013 on the effects of close elections on policy deals). In each of these cases, it is plausible that an extreme party faced with a moderate party will be especially unlikely to seek compromise.
Given that Congressional polarization has moved in tandem with Republican ideological asymmetry, studying the national legislature gives us little leverage to parse the independent effects of these two trends on policy outcomes. To address this problem, we move from the national level to the states. An extensive new initiative by Boris Shor and Nolan McCarty (2011) permits scholars to assess the character and policy effects of both political polarization and
6 ideological asymmetry. By combining data on state legislator roll call votes and candidate surveys, Shor and McCarty were able to construct a measure of party ideological positions that is comparable over time and states, similar to the national DW-NOMINATE scores. Taking advantage of cross-state variation, we can test which specific aspects of political parties’ ideological differences – if any – have an impact on policy outcomes.
A Test Case: State Earned Income Tax Credits
To consider the distinct effects of polarization and ideological asymmetry, we examine a policy that has long been a product of compromises between Republicans and Democrats: the earned income tax credit. First proposed at the national level in the 1970s after debates over a negative income tax, the EITC was created under the Ford administration and then greatly expanded under President Reagan, who described the legislative package that included the EITC as the “best anti-poverty, the best pro-family, the best job creation measure to come out of
Congress” (quoted in Greenstein and Wancheck 2011). Later expansions of the federal EITC occurred during the Republican George W. Bush administration and the Democratic Clinton and
Obama presidencies.
Between 1986 and 2012, 25 states and the District of Columbia followed the federal government’s lead and created state versions of an EITC (see table 1). This is the empirical puzzle we seek to explain in this paper: why, and under what circumstances, did these states enact EITCs? We examine this policy for several reasons: state EITCs are important and surprisingly durable social policies, they are comparable across states, and they are a classic example of policy born of political compromise, which ought to be most affected by changes in party ideology and polarization. We examine each of these points in turn.
7
8 Table 1: State Earned Income Tax Credits Overview
State Year Enacted Refundable? Percentage of the Federal EITC 1999 Colorado Yes 10% (currently suspended) Connecticut 2011 Yes 25%, intended to rise to 30% Delaware 2005 No 20% DC 2000 Yes 40% Illinois 2000 Yes 5% Indiana 1999 Yes 9% Iowa 1989 Yes 7% Kansas 1998 Yes 18% Louisiana 2007 Yes 3.5% Maine 2000 No 5% 25% (Refundable) Maryland 1987 Yes 50% (Non-refundable) Massachusetts 1997 Yes 15% Michigan 2006 Yes 20% Minnesota 1991 Yes Calculated as share of income Nebraska 2006 Yes 10% New Jersey 2000 Yes 20% New Mexico 2007 Yes 10% New York 1994 Yes 30% North 2007 Carolina (revoked 2013) Yes 5% Oklahoma 2002 Yes 5% Oregon 1997 Yes 6% Rhode Island 1986 Partially 25% Vermont 1988 Yes 32% Virginia 2004 No 20% Washington 2008 Yes 10% Wisconsin 1989 Yes 4-34%
9 State EITCs are substantively important to working families’ wellbeing. Because almost all state EITCs are refundable, the program is a large cash subsidy, often worth thousands of dollars a year to a low-income family. A broad body of research has shown that the federal EITC has reduced poverty and improved parents’ employability and family quality of life (see e.g.
CBPP 2013; Marr, Charite, and Huang 2013). Without an EITC, moreover, the number of states levying income taxes on families below the poverty line would nearly double to 26 states.
What is more, state EITCs have exhibited remarkable durability over time, even in the face of state budget shortfalls. In 2011, for example, revenue-strapped states reduced the cash welfare program, Temporary Assistance for Needy Families, for some 700,000 low-income families (Schott and Pavetti 2011) and also made unprecedented cuts to unemployment insurance benefits (McKenna and Wentworth 2011). Yet until North Carolina did so in 2013, no state has eliminated its EITC, and several have expanded the generosity of their credits (Grovum 2014).
Given its political durability, the EITC’s enactment is especially important to explain. The policy has a long-term impact and appears to follow a different political logic compared to other, more traditional social programs.
More practically, the earned income tax credit is a simple policy that allows for relatively straightforward comparisons across states. In terms of policy structure, state EITCs are a line item in the tax code, a state credit that is calculated as a percentage of the federal EITC (table 1).
Because the policy is so administratively simple, there is very little difference in implementation, making cross-state comparisons easier.
Finally, the EITC is a policy that can and does receive bipartisan support – the kind of policy likely to be affected by polarization. Christopher Howard (1995, 2007, 2011) and Dennis
Ventry (2000) characterize the federal EITC as a compromise solution. Neither Democrats nor
10 Republicans would choose the EITC as a first order policy objective, they argue; rather,
Democrats in the 1990s proposed expanding the EITC as a form of social spending that
Republicans could find appealing. Though the polarization literature would suggest that such compromises would be harder to reach in an era of polarized politics, EITC scholars have actually argued the reverse: because the EITC can appeal to both parties, we should see greater support for that policy as the parties pulled away from each other. A report by Demos, a liberal think-tank, expressed this perspective in the early 2000s, arguing that the EITC promised to help create “[a] new political consensus around poverty and economic security” that could attract both
Democrats and Republicans alike (Draut, Callahan, and Hawkes 2002). In sum, because of its status as a political compromise, the EITC is the kind of policy that can shed light on the policy impact of party ideological positions.
Ideological Asymmetry and the EITC
We argue that ideological asymmetry, not polarization, ought to provide a stronger explanation for EITC enactments. As we have discussed above, the EITC is a compromise policy, with components that can appeal to both liberals and conservatives. By the same token, however, those at the extremes of both parties have strong ideological reasons to oppose the
EITC. The left can object to the EITC on at least two grounds. First, the legislation is targeted at working people with children, rather than being a universal income supplement, and therefore does not fit with a commitment to a minimum income as a right. Moreover, the EITC subsidizes low wages, in essence providing financial support to companies that employ people at or near the minimum wage; liberals might therefore prefer to raise the minimum wage instead. But the EITC also makes the tax code more progressive, and provides a cash transfer to the poor. Both of these
11 policy goals could be viewed as anathema to strong conservatives, who might argue that these policies discourage work.
In recent years, however, the Democratic coalition has lost its main base of economic liberalism – unions. The resulting move of mainstream Democrats to the economic center and away from what has been termed “New Deal liberalism” is well documented (e.g. Hacker and
Pierson 2010; McCarty 2012). Economically conservative Republicans, however, suffering no similar weaknesses (e.g. Kabaservice 2012), have sought to roll back both progressive taxation and redistribution towards the poor (see e.g. McKenna and Wentworth 2011; Eligon 2013).
Indeed, conservative Republicans in at least seven states have recently sought to eliminate their state income taxes altogether, often citing their preference for a more regressive sales tax
(Associated Press 2012). This shift has been part of a broader conservative rejection of the role of government in a mixed economy (e.g. Hacker and Pierson 2006; Kabaservice 2012). Though the states offer a wider range of partisan distributions than the federal Congress, the state parties are still operating the context of this larger trend.
Our theory, combined with the reality of the range of partisan ideology in recent years, has several observable implications. First, we expect the EITC will be less likely to be implemented where the state’s Republican legislators have become especially conservative relative to the state’s Democratic legislators. Second, we expect the effect of asymmetry to be stronger when Republicans control at least one branch of government. Finally, measures of ideological asymmetry should better predict EITC enactment than traditional measures of polarization.
While we do not expect to find strong opposition from the left in the aggregate, that does not mean that traditional left-wing objections to an EITC are never significant. Left asymmetry
12 may prevent the EITC compromise in the few instances where Democrats were substantially farther to the left than has been typical during this period. To examine this possibility, we look at the historical record of EITC enactment in times and places where Democrats were especially liberal: in the “bluest” states, and at the national level during a period of national Democratic liberalism and union strength.
Alternative Explanations
We test our theory against three theoretical perspectives that are commonly used to explain variation in social policy: power resources, welfare capitalism, and ethnic heterogeneity.
We also include control variables capturing a state’s fiscal condition and its tax structure.
Power resource theory views the social and economic policymaking process as a class struggle; labor and its political representatives seek to create more generous policies for workers while capitalists and their representatives aim to stymie the expansion of social benefits (e.g.
Korpi 1983). Most analyses of state social policy find at least some support for the power resource theory, with higher union density and more liberal states more likely to have greater social spending or redistribution (e.g. Radcliff and Saiz 1998; Kelly and Witko 2012). Power resource theory would thus predict that states with stronger labor unions or states with
Democratic control of government would be more likely to implement EITCs.
In response to power resource theories, a growing scholarship in comparative political economy has examined the positive role that capitalists and business associations have played in creating and expanding social policies. Scholars have shown that under certain conditions, businesses can have a strong economic interest in more generous social benefits, for example if those benefits provide insurance that encourages workers to invest in productive skills (e.g.
13 Estevez-Abe, Iversen, and Soskice 2001; Mares 2003) or if benefits put economic pressure on low-wage competitors (e.g. Swenson 2004).
The EITC is likely to be an especially attractive social program for predominantly low- skill, service-sector employers because it acts as a wage subsidy for low-wage workers
(Rothstein 2010). But despite this potential economic interest, businesses apparently were not major participants in the creation of the federal EITC (Howard 1995, 407). Corporations have, however, certainly been aggressive at increasing take-up of the EITC amongst their workers in recent years. Wal-Mart, for instance, supported a measure that would require employers to notify their workers about eligibility for the EITC, a practice that the store had already implemented in
California.2 We thus hypothesize that low-wage businesses might be supportive of the creation of
EITCs at the state level.
Our third alternative explanation involves ethnic diversity. The expected effect of ethnic heterogeneity on EITC implementation depends on whether one views the policy primarily as a tax provision or as social spending. A broad body of research suggests that ethnic heterogeneity is related to lower social spending, both across countries (e.g. Alesina and Glaeser 2004) and
American states (e.g. Hero 1999). More specifically, scholars have pointed to divisive race relations as a reason for America’s less redistributive welfare state (Quadagno 1988; Katznelson
2005). Viewing state EITCs as social benefits, this line of research would predict that more diverse states would be less likely to adopt EITCs.
In contrast, recent work by Rourke O’Brien examining the structure of state tax codes has come to the opposite conclusion: states with more diverse populations (specifically, larger
2 See, for example, the following press release from Wal-Mart: http://news.walmart.com/news- archive/2008/06/25/wal-mart-joins-sen-schumer-rep-emanuel-in-support-of-eitc-education.
14 African American populations) are more likely to have lower income tax rates on poorer households, as well as lower sales tax rates (O'Brien 2011). Therefore if we expect that the politics of state EITCs are the politics of tax policy, we ought to expect that states with larger minority populations would be more likely to create EITCs.
Along with variables to test each of these three existing theories of social welfare provision, we also include control variables for two important features of state governments: state budget conditions and whether or not the state has an income tax in place. We expect that states will have been more likely to enact EITCs during periods of stronger budgets. In addition,
EITCs are easiest to implement in states with existing income taxes given that the credit is generally administered through the tax code, so we ought to control for these administrative resources. Table 2 summarizes each of these hypotheses and their observable implications.
15 Table 2: Hypotheses for Quantitative Analysis
• Republican ideological asymmetry will make a state less likely to adopt an EITC. Ideological Asymmetry • Republican ideological asymmetry should matter most if Republicans control at least one branch of government compared to full Democratic control. • States with greater levels of polarization will be more likely to enact EITCs (EITC literature). Polarization • States with greater levels of polarization will be less likely to enact EITCs (polarization literature). • States with greater Democratic control of government will be more Power Resources likely to enact EITCs. • States with higher union density will be more likely to enact EITCs. Welfare • States with a greater incidence of low-wage work will be more likely Capitalism to enact EITCs. • States with more diverse populations will be less likely to enact Ethnic EITCs (welfare state prediction). Heterogeneity • States with more diverse populations will be more likely to enact EITCs (fiscal sociology prediction).
16 Methodology
To test our theory of state EITC adoption, as well as the competing explanations we outlined above, we employed an event history regression (see e.g. Box-Steffensmeier and Jones
2004). Formally, we estimated the following logistic model:
�!,! log = �! + �!�!,! + �!���� 1 − �!,!
Where the unit of analysis was a state-year “at risk” for adopting an EITC for the first time and the outcome of interest was �!,!, or the probability of EITC adoption in state s and year t.3 We modeled this probability as a function of state-specific characteristics (x) that varied with time. We also include time itself, modeled as a linear trend, though we find similar results using year fixed effects as well (see supplementary materials). We clustered heteroskedasticity robust standard errors at the state level.4
The data we used came from a dataset of various social, political, and economic variables for each state between 1993 and 2010.5 To test power resource theory, we used union membership data (Hirsch, Macpherson, and Vroman 2001) and a variable indicating how many branches of government the Democrats controlled in a given year (from Klarner 2007). To
3 We obtained the years of enactment from the “Tax Credits for Working Families” website: http://www.taxcreditsforworkingfamilies.org/earned-income-tax-credit/states-with-eitcs/.
4 We cannot include state fixed effects in this model; since there is necessarily only one enactment per state, state effects would be a “perfect predictor” of EITC adoption.
5 These years were selected to maximize data availability across our variables. We are most limited by the availability of party ideological positions, which are available from 1993 onwards
(1995 to 2008 for most states).
17 reiterate, power resource theory would predict that state EITCs would be more likely in states with greater union density and Democratic control of state government.
To test welfare capitalist theories, we included the share of the state’s labor force employed in full-time positions that paid wages below the federal poverty line in that year
(authors’ analysis of March Current Population Survey microdata; King et al. 2013).6 Welfare capitalist accounts would expect that states with larger proportions of their labor force employed in low-wage occupations – employers that would disproportionately benefit from the implicit subsidies in an EITC program – would be more likely to enact EITCs.
To test ethnic diversity theories, we included the share of the state’s population that is
African American, using Current Population Survey microdata (authors’ analysis of King et al.
2013).
We test our own theory of ideological asymmetry by drawing on Shor and McCarty’s
(2011) dataset of state legislator ideology. Shor and McCarty used a combination of state roll call votes and national candidate surveys to construct ideological scores for state legislators that are comparable across different states and years. We use two measures from their dataset: first, the ideological distance between the two parties (where the ideology for each party is averaged across the chambers for each state), the traditional measure of polarization; and second, our new measure of ideological asymmetry, computed as the Republicans’ contribution to the ideological distance between the two parties. For a given state S, the asymmetry index is the average ideological score of the Republican party R (calculated as the average of the party medians in
6 Alternate specifications replacing this variable with the number of Wal-Marts in a state and year did not produce substantively different results.
18 both state legislative chambers) divided by the difference between the average ideological score of the Republican party R and the average ideological score of the Democratic party D.7
�!" ���������! = �!" − �!"
An asymmetry score below .5 implies that the state legislature’s Democratic party is more liberal than the Republican party is conservative. Connecticut’s parties in 1996 represent this alignment with a score of 0.04. A score above .5 suggests that the Republicans are more conservative than the Democrats are liberal. Kentucky’s score in 2001 shows this alignment with
0.79. A score of precisely .5 would indicate that the parties are ideologically balanced. Ohio’s parties in 1995 most closely approximate this balance.
To measure a state’s fiscal condition, we included a variable that measures state expenditures as a share of total state revenues, using data from the Tax Policy Center’s Local and
State Finance Database. Higher values indicate worse state finances. Finally, we include a dummy variable to indicate if a state had an income tax in a given year, based on the data from the Tax Policy Center.
Results
Before we turn to our regression results, we provide a series of plots that visualize the difference between ideological asymmetry and polarization, and offer an intuition of the importance of ideological asymmetry for EITC adoption. Figure 1 below shows a plot of the states with state lower chamber Republican ideology on the x-axis and lower chamber
Democratic ideology on the y-axis. States that enacted an EITC are shown in red, while states
7 Basing our measure on the party-chamber medians our results are less susceptible to bias from the error associated with the measurement of the ideological score for any individual legislator.
19 that did not are in black. For states in which an EITC was adopted, the values of party ideology in each state correspond to either the adoption year, or the nearest available year, if the precise year is unavailable. For states in which an EITC has not been adopted, we use the most recent value. The solid grey line indicates mean polarization; along that line, the Democrats and
Republicans have an ideological distance of about 1.3. Points closer to the origin have lower polarization, while point farther out have higher polarization. As is clear from the plot, some states with relatively high polarization (like Washington, Colorado, Michigan, and Wisconsin) enacted EITCs, but so too did states with relatively low polarization (like Massachusetts, Rhode
Island, Louisiana, Oregon, and Delaware). There is no consistent placement of EITC-adopting states around the polarization line.
Figure 2 shows the same plot as Figure 1 except the reference line now indicates ideological balance between the two parties. Points above the line indicate that state Democrats are more ideologically extreme than the Republicans (that is, asymmetry < 0.5), and points below the line indicate that Republicans are more ideologically extreme than the Democrats
(asymmetry > 0.5).
20 Figure 1: Lower Chamber Polarization and State EITC Enactment
Mean Polarization
-2.0 +/- 1 SD CA NY EITC State AR Non-EITC State
-1.5 AZ NY
NJ MI WI CO ID MA
-1.0 FL CT WA IL NM DE ME MD VT MN TX HI NH IA OHMT MO WYVA KS RI OR NV GA PA NC -0.5 UT INSC TN SD AK WV ND MS AL
OK LA 0.0 KY AR < More Moderate NPAT Scores < Moderate More Democratic Extreme > More
0.0 0.5 1.0 1.5 2.0
< More Moderate Republican NPAT Scores More Extreme >
Note: Ideology scores assigned to EITC states using their year of enactment or the nearest available year, and using the most recent year of data available in the case of non-EITC enacting states.
21 Figure 2: Lower Chamber Ideological Asymmetry and State EITC Enactment
-2.0 CA
-1.5 AZ NY
NJ MI WI CO ID MA
-1.0 FL CT WA IL NM DE ME MD VT MN TX HI NH IA OHMT MO WYVA KS RI OR NV GA PA NC -0.5 UT INSC TN SD AK WV ND MS AL
OK LA 0.0 KY Party Balance AR NY EITC State
< More Moderate NPAT Scores < Moderate More Democratic Extreme > More AR Non-EITC State
0.0 0.5 1.0 1.5 2.0
< More Moderate Republican NPAT Scores More Extreme >
Note: Ideology scores assigned to EITC states using their year of enactment or the nearest available year, and using the most recent year of data available in the case of non-EITC enacting states.
22 In contrast to the previous chart, we can see a clear pattern to the cases of EITC adoption in Figure 2: EITC-adopting states cluster near or above the line of party balance, but rarely far below it. That means that EITCs are typically adopted in states where Democrats tend to be either fairly balanced with Republicans in ideological extremity, or more liberal than
Republicans are conservative.
Note that it is not simply Republican conservatism that negatively correlates with EITC adoption. For instance, Kentucky and Kansas show similar levels ideological positions for the
Republican party. Kansas has a more liberal Democratic party, however, putting the state near the balance point, while Kentucky has a very moderate Democratic party, making it ideologically asymmetric. Kansas, the more balanced state, adopted an EITC, while Kentucky has not. In sum,
EITCs are only rarely adopted in states where Republicans are much more conservative than
Democrats are liberal. These figures, then, provide bivariate support for the notion that party ideological asymmetry, not polarization, explains EITC adoption across the states. To more rigorously assess this theory (and the various alternatives), we turn to our regressions.
We present our main regression results in Table 3. Because of our relatively small sample and the even smaller number of successful events (i.e., EITC enactments), we examine our alternative theories in separate models (Peduzzi et al. 1996, for example, show that estimates of logistic coefficients and standard errors can be severely biased with a high number of coefficients and a low number of events). To summarize, while we find minimal support for the four alternative theories – traditional polarization, power resources, welfare capitalism, and ethnic heterogeneity – we find strong support for our own explanation rooted in the ideological asymmetry between the two political parties.
23 Table 3: Event History Analysis (Logit) of State EITC Adoption
Model Model Model Model Model 1 2 3 4 5 Union Density 0.06 (0.04) Democratic Control 0.11 0.13 (0.22) (0.23) Black Share of Population -1.00 (2.35) Low Wage Share of LF -16.43 (9.06) Republican Ideological Asymmetry -2.02 0.24 (1.05) (1.34) Polarization -0.58 -0.57 (0.58) (0.57) Democrats Lack Full Control 1.48 (1.24) Democrats Lack Full Control X Republican Ideological Asymmetry -3.10 (1.73) Income Tax 1.48 1.47 1.44 1.36 1.34 (1.00) (1.05) (1.03) (1.17) (1.17) Budget Shortfall -1.44 -1.20 -2.14 -2.15 -1.88 (2.16) (2.29) (2.13) (2.25) (2.19) Year Trend YES YES YES YES YES N 452 452 467 467 467
Note: Table shows unstandardized logit coefficients and robust standard errors clustered at the state level.
24 Most state policy analyses find at least a modest relationship between variables measuring left-wing power resources or ethnic heterogeneity and the generosity of social programs. Yet we found no clear relationship between either union density or Democratic control of government and the likelihood of a state implementing an EITC (model 1), a result in keeping with perceptions of this policy as a compromise, rather than a liberal initiative. Similarly, we found no statistically or substantively strong relationship between the share of African
Americans in a state and the likelihood of EITC implementation (model 2). Our findings regarding the role of business also did not support the predictions of welfare capitalism theories
(model 3). Indeed, if anything, the prevalence of low-wage employment in a state is negatively correlated with the adoption of an EITC.
Turning to model 4, we find that party polarization is a poor predictor of the adoption of state EITCs; the coefficient is far from conventional statistical significance at p=0.32.8
Ideological asymmetry, however, is a much better predictor, as our theory anticipated. The coefficient is significant at p=0.05. Moving from the 25th to the 75th percentile of Republican ideological asymmetry, holding all other variables at their observed values, is predicted to lower the probability of EITC creation by 43% (p=0.05).
Similarly consistent with our theory, model 5 shows that Republican ideological asymmetry matters most when Republicans control at least one branch of government. A move from the 25th to the 75th percentile of Republican ideological asymmetry has no statistically significant effect on the probability of EITC adoption when Democrats enjoy full control of state government. But when Republicans do have some formal power, that same move in Republican
8 Party polarization remains a poor predictor of EITC enactments even in models where we enter it on its own.
25 ideological asymmetry is statistically significant (p=0.01) and large, resulting in a 55% reduction in the probability of EITC adoption (holding all other variables at their observed values). Thus, the effect often ascribed to polarization – that is to say, increased gridlock in times of divided government – is, at least in the case of the state EITC, better ascribed to ideological asymmetry under divided government.
Our control variables – state fiscal conditions and income tax structure – do not reach levels of conventional statistical significance in any of our main models, but are signed in the anticipated directions and have relatively large effect on EITC adoption. States tend to enact
EITCs when their budgets are stronger, and when they already have an income tax in place. Our main findings did not change when we used bootstrapped standard errors or when we estimated our model using the rare event logit, as proposed by Gary King and Langche Zeng (2001; see supplementary materials).
What About Left Asymmetry?
Our hypotheses regarding ideological asymmetry would suggest EITCs would be opposed from both ends of the political spectrum: by far-left Democrats, for not being liberal enough, and far-right Republicans, for not being sufficiently conservative. In our data, however, we find only an effect of Republican asymmetry. Looking across a wider time span and in more detail at the EITC’s passage in liberal states, however, it is clear that Democratic asymmetry can, and has, stood as a barrier to compromise on the earned income tax credit, and on other income- based subsidies for the working poor.
Massachusetts is one of the most left-skewed states, with a very liberal Democratic party and a very moderate Republican party. This is an instance where one would most expect to find
26 an effect of left asymmetry. Interviews with EITC proponents and other policy makers in
Massachusetts reveal that there was indeed opposition from the left, though it was not strong enough to defeat the measure.
Massachusetts enacted an EITC in 1997. In a time of budget surplus, tax cuts were on the table; the question was whose taxes would be reduced. The EITC was spearheaded by the state
Senate Democratic leadership, and particularly by the Senate Ways and Means Committee Chair,
Stanley Rosenberg. Though Democrats controlled the legislature, the Republican member of the final conference committee was “fully supportive” of the new tax credit, according to Senator
Rosenberg, and the EITC was signed into law by Republican Governor William Weld.
But before the EITC ever came to a vote, it faced opposition from liberal Democrats. The idea of an earned income tax credit was brought to the attention of the Democratic leadership by the Tax Equity Alliance, a coalition of progressive groups and unions, and especially by the work of Jim St. George, the director of that organization. Before St. George could advocate on behalf of the policy, however, he had to convince Massachusetts’s liberal skeptics.
In a meeting with former Governor Michael Dukakis, who later joined the board of the
Tax Equity Alliance, Dukakis “immediately and instinctively challenged my proposal from the left,” St. George recalls. Dukakis preferred a more progressive strategy to combat poverty, one that put the onus on employers, rather than subsidizing low wages with an EITC. “We shouldn’t be doing a tax credit, we should be doing a living wage,” St. George recalls the former
Massachusetts Governor arguing.
An even more critical source of opposition came from the Massachusetts teachers union.
The chair of the union board at first told St. George “no, your job is to oppose” any and all tax cuts, St. George explained. Since unions were a major part of the Tax Equity Alliance, their
27 opposition could have dealt a critical blow to St. George’s efforts, but he managed to convince the union not to oppose the policy initiative.
In Massachusetts, then, those committed to policies more liberal than the EITC were not able to provide effective resistance to the compromise. But when a similar dynamic played out in Hawaii, one of the most left-asymmetric states without an EITC, the EITC did not survive. In
2013, the Hawaii legislature voted in favor of a state EITC to offset the state’s extremely regressive tax policies, but the measure failed to make it through conference committee.
Proponents of the measure claim the policy was stymied for partisan reasons: the EITC had
Republican sponsorship and the heavily Democratic and left-leaning legislature prioritized the passage of a substantial minimum wage increase instead.
A few decades earlier, moreover, liberal Democrats successfully opposed the forerunners of the modern EITC at the national level. In the late 1960s and early 1970s, various income supplement policies, including a negative income tax and a guaranteed annual income, were on the policy agenda and received support from moderate Democrats and Republicans. Despite the proposals’ bipartisan popularity, however, an income supplement policy was not ultimately enacted.
The Johnson administration deferred even appointing a commission to examine income- supplement policies for more than a year, and never made an income supplement a component of the War on Poverty. “The income-based approach to public assistance” argues sociologist Brian
Steensland, “was philosophically at odds with the service-based approach of the Great Society, which in turn was rooted in the New Deal programs of the 1930s” (Steensland 2008, 73). Other groups on the left were even more fervently opposed to the principle of a low wage subsidy,
28 including labor unions and some civil rights groups, again on the grounds that these policies were too conservative (Steensland 2008, especially chapter 4).
Under President Nixon, another precursor to the EITC was stymied by left-wing opposition. Nixon’s work-promoting income supplement policy, the Family Assistance Plan, was again opposed from the left. The bill was eventually defeated in the Senate Finance Committee, where liberals, including Eugene McCarthy and Albert Gore Sr., voted against the measure. As moderate Democrat Patrick Moynihan put it, the Family Assistance Plan’s “most passionate opponents were those who declared themselves in favor of more, not less, than it provided.”
(Moynihan 1973).
Thus there are significant instances of left-wing opposition, not only to the EITC, but even to the policy principles behind the credit. During the period in which most states passed an
EITC, however, the liberalism in the Democratic Party was rarely to the left of the EITC, and so left-asymmetry was not a significant factor in the aggregate.
Discussion
Our results make clear that ideological asymmetry provides a better explanation of EITC adoption than ideological distance. But perhaps there is no puzzle here at all: if one considers the
EITC to be a liberal policy device, it should come as no surprise that states with more conservative Republican parties are less likely to enact such a policy. In response to this potential concern, we reiterate that the EITC was fundamentally a bipartisan, compromise policy measure that was not the first order preference of liberal Democrats and interest groups. Aside from its support from Republican politicians, like Ford and Reagan, the EITC has also attracted support from right-leaning economists such as Gary Becker and Robert Barro (quoted in Greenstein and
Wancheck 2011). In addition, Democrats’, and especially liberal Democrats’, preference for
29 other policy measures over the EITC is clear in our case study of Massachusetts, the historical evidence of EITC precursors, and in contemporary debates over the minimum wage (e.g. Martin and Shear 2013). Finally, it is not simply the states with the most conservative Republicans that have failed to enact an EITC; it is the states where the Republicans are substantially more extreme than the local Democrats. It is asymmetry that drives EITC opposition.
We would expect the pattern we have identified here to hold true for other compromise policies. Future work ought to examine both whether ideological asymmetry reduces compromise across different policy domains, and the causes and other consequences of ideological asymmetry itself. One interesting consideration for future analysis is that ideological asymmetry may be most productive for parties that are committed to stymieing legislative action, rather than actively passing new policy (as is the case with Republicans and the EITC), given the veto point-ridden system of policymaking in the US (e.g. Tsebelis 1995).
To aid the use of ideological asymmetry in such future work, table 4 categorizes the states based on their average party polarization (ideological distance) and ideological asymmetry.
We divide these two dimensions by terciles, with cuts at 0.42 and 0.59 for asymmetry and 0.75 and 0.91 for polarization. These categories represent low, moderate, and high polarization, and
Democratic-skewed asymmetry, moderate asymmetry, and Republican-skewed asymmetry, respectively. Massachusetts and Rhode Island are examples of states with relatively low polarization and relatively high Democratic ideological asymmetry; Connecticut and New
Hampshire are examples of states with relatively high polarization and high Democratic ideological asymmetry; Louisiana and Oklahoma are examples of states with low polarization but very high Republican ideological asymmetry; and Alabama and Montana are examples of states with high polarization and high Republican ideological asymmetry. Together, this
30 typology provides intriguing variation that scholars might use as either an explanatory variable
(as we have done in this paper) to clarify when and why states enact particular policies, or as an outcome, to examine how states develop these particular constellations of party ideologies over time.
31 Table 4: Classifying States Based on Party Polarization and Ideological Skew
Low Moderate High Polarization Polarization Polarization DE, HI, IL, MA, FL, IA, NY, VA, CT, ME, MI, Democratic Asymmetry NJ, RI (6) VT (5) NH, OR, WI (6) AK, AZ, CA, ID, KS, MD, PA, WY (2) CO, NC, NM, MN, NV, UT (6) Moderate Ideological Asymmetry OH, WA (8) AR, IN, LA, MS, GA, KY, MO, ND, OK, SD, AL, MT (2) SC, TN, TX (6) Republican Asymmetry WV (8)
Note: Table classifies states by their level of polarization and party ideology skew. Cuts made at the terciles of each variable.
32 Conclusion
State earned income tax credits have been an enormously important source of economic security for working poor families. Yet scholars know little about when and why states decided to create these programs. In examining this question, we tested the implications of party ideological differences for public policy compromise. Party scholars have hypothesized that increased polarization ought to reduce the likelihood of compromise legislation, like the EITC, while some social policy researchers have speculated that polarization ought to make compromises like the EITC both more necessary and more politically feasible. We found no evidence to support either of these propositions. Political polarization – as measured by the ideological distance between the two parties – could not explain which states ultimately enacted
EITCs. Neither could a range of other social, economic, and political factors – like the power of labor and the left, the interests of business, or racial heterogeneity – that are often thought to explain variation in social policy outcomes.
Instead, the most important explanation for state variation in the creation of EITCs was the ideological asymmetry between Democrats and Republicans. Where Republicans were much more conservative than Democrats were liberal (or, putting it differently, where Republican ideological extremity accounted for more of the ideological distance between the parties), EITCs were nearly never adopted. In contrast, EITCs were much more likely to be created when
Republicans and Democrats were more evenly balanced on the ideological spectrum, even when
“polarization” was high. Together, these results provide an important contribution to the study of social policy, explaining a key part of the “hidden” (Howard 2007) or “submerged” (Mettler
2011) welfare state provided through the tax code.
33 Our findings also suggest that scholars need to re-examine the concept of polarization.
We have considered both the effect of the ideological distance between the two parties and their ideological asymmetry. Asymmetry, as our findings show, can be an important explanation for policy outcomes, and may also offer a novel outcome for researchers to study in its own right. In addition, there are other aspects of party ideology worth examining, such as party homogeneity, which may or may not correlate with the traditional polarization measure, and which may also shape policy outcomes.
Finally, this paper underscores the work of other scholars that finds that a “major transformation in our time has been the emergence of a powerful – and, in some ways, radical – conservative movement” (Pierson and Skocpol 2007). There remains much more to learn about the consequences of that conservative ideological asymmetry for policy outcomes (but see
Hacker and Pierson 2006; Glenn and Teles 2009; Mann and Ornstein 2012 for important recent efforts). We have highlighted one important consequence of Republican ideological asymmetry – stymieing the creation of what was once a compromise social policy measure – and in so doing, put forward the states as a potential site for fruitful future research on this matter. We believe that better measures of the party’s ideological positioning – like asymmetry – will be powerful tools in understanding both the sources of partisan extremism and its effect on American politics.
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39 Supporting Information (for online publication)
Appendix A: List of Interviews
Interview State Contact Organization Date California Jean Ross California Budget Project 3/6/13 Colorado Chaer Roberts Women's Lobby 12/20/12 Florida Jeff Winkler RealSense 4/24/13 Georgia Wesley Tharpe Georgia Budget and Policy Institute 2/26/13 Victor Hawaii Appleseed Center for Law and Hawaii Geminiani Economic Justice 4/30/14 Kansas Gary Brunk Kansas Action for Children 3/5/13 Sister Therese Kansas Bangert Sisters of Charity of Leavenworth 4/24/13 Massachusetts Noah Berger Massachusetts Budget and Policy Center 4/2/13 Massachusetts Jim St. George Tax Equity Alliance Massachusetts 4/9/13 Margaret Massachusetts Monsell MA Senate Ways and Means Committee 4/9/13 Massachusetts Stan Rosenberg MA Senate (D-Amherst) 4/23/13 Massachusetts Michael Widmer Massachusetts Taxpayers Foundation 4/25/13 National Qiana Flores National Conference of State Legislatures 12/20/12 National Erica Williams Center on Budget and Policy Priorities 2/7/13 Deborah Stein, National Amy Greene Hatcher Group 2/11/13 National Amy Battjer Hatcher Group 3/11/13 Oregon Chuck Sheketoff Oregon Center for Public Policy 4/2/13 Journalist, Oregonian formerly Register Oregon Harry Esteve Guard 4/22/13 Oregon Steve Buckstein Cascade Policy Institute 4/9/13 Service Employees International Union, Oregon Megan Moyer Local 503 4/24/13 Legislative Assistant, Office of State 5/1/13 Oregon Megan Osborne Senator Rosenbaum (by email) South Dakota Joy Smolnisky South Dakota Budget and Policy Project 4/4/13 Cathy South Dakota Brechtelsbauer Bread for the World 4/9/13 South Dakota Mary Glenski SD Representative (D-Sioux Falls) 4/22/13 South Dakota Chamber of Commerce and South Dakota David Owen Industry 4/22/13 South Dakota Reynold Nesiba Augustana College 4/22/13 Washington Remy Trupin Washington State Budget and Policy 3/1/13
40 Appendix B: Robustness Checks
The following table shows that our results are robust to using the rare events logit (see text for more details; model 1), bootstrapped standard errors (model 2), and including year fixed effects instead of a linear time trend (model 3). Together, these additional regression results help to address concerns that our results are being driven by outlying observations or that there are unobserved time shocks that might explain both party positions and EITC adoption. In all specifications the effect of Republican ideological asymmetry remains similar to the main results.
Model 1 Model 2 Model 3
Republican Ideological Asymmetry -1.92 -2.02 -1.84 (1.03) (1.17) (1.06) Polarization -0.50 -0.58 -0.47 (0.57) (0.52) (0.62) Democratic Control 0.14 0.13 0.08 (0.23) (0.21) (0.24) Income Tax 0.86 1.36 1.01 (1.16) (0.59) (1.05) Budget Shortfall -1.73 -2.15 3.15 (2.22) (1.89) (3.37) Year Trend YES YES NO Year Dummies NO NO YES N 467 467 336
Note: Table shows unstandardized logit coefficients and robust standard errors clustered at the state level (except in the case of Model 2). See text for more details.
41