Nel's New Day

December 25, 2012

Fixing the Economy

The social decline facing the United States made possible by the loss of revenue during the two terms of George W. Bush has steadily moved the country lower and lower among the countries of the world. Both political parties want the American dream for everyone, giving all people the opportunity to escape poverty. According to James Gustave Speth in his new book, American the Possible: Manifesto for a New Economy (Yale University Press, 2012), a fair and equitable society in the U.S. is possible.

Speth uses the definition of “the American dream” from James Truslow Adams  in his 1933 book The Epic of America: “It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

Equality is vital for economic growth, according to the Center for American Progress. As Robert Reich explains in his 2010 book Aftershock: “Unless America’s middle class receives a fair share, it cannot consume nearly what the nation is capable of producing. . . . The inevitable result is slower economic growth and an economy increasingly susceptible to great booms and terrible busts.

Because today’s high productivity and economic growth stem largely from scientific and technological knowledge, most of which is inherited from the past, the greater portion of income and wealth “comes to us through no effort of our own,” as Gar Alperovitz and Lew Daly point out in their book Unjust Desserts.  Herbert Simon observed, “[If] we are very generous with ourselves, I suppose we might claim we ‘earned’ as much as one fifth of [our income].” The major question comes from how to share the wealth that no one living today has created.

In the 20th century, both political parties were concerned with eradicating poverty, creating universal health care, providing high-quality and affordable education for all, guaranteeing meaningful and living-wage employment opportunities, and devising a just and fair tax system. Yet conservatives increasingly increased opportunities for the wealthiest in the nation while eliminating the possibility for the bottom 99 percent through the destruction of unions, lessening of minimum wages, and allowing the costs of health care and education to astronomically increase.

Harvard’s Howard Gardner argues that “no single person should be allowed annually to take home more than 100 times as much money as the average worker in a society earns in a year. If the average worker makes $40,000, the top compensated individual may keep $4 million a year. Any income in excess of that amount must be contributed to a charity or returned to the government, either as a general gift, or targeted to a specific line item (ranging from the Department of Veterans Affairs to the National Endowment for the Arts).” He further proposed that no individual would be permitted to pass more than $200 million to his or her heirs, and that any excess must be contributed to charity. “To those who would scream ‘foul’ to such limits on personal wealth,” he concludes, “I would remind them that just 50 years ago, this proposal would have seemed reasonable, even generous.”

Another good idea is a reverse income tax, as recommended in Aftershock. Using the negative income tax idea examined in the 1960s and today’s earned income tax credit, he urges that “full-time workers earning $20,000 or less (this and all subsequent outlays are in 2009 dollars) would receive a wage supplement of $15,000. This supplement would decline incrementally up the income scale, to $10,000 for full-time workers earning $30,000; to $5,000 for full-time workers earning $40,000; and then to zero for full-time workers earning $50,000. The tax rate for full-time workers with incomes between $50,000 and $90,000–whether the source of those incomes is wages, salaries, or capital gains–would be cut to 10 percent of earnings. The taxes for people with incomes of between $90,000 and $160,000 would be 20 percent, whatever the income source.”

Reich also promotes higher taxes for the wealthy. He said, “I propose that people in the top 1 percent, with incomes of more than $410,000, pay a marginal tax of 55 percent; those in the top 2 percent, earning over $260,000, pay a marginal tax of 50 percent; and those earning over $160,000, roughly the top 5 percent, pay 40 percent. These taxes, when added to the modest amounts contributed by taxpayers who earn between $50,000 and $160,000 under my plan, would raise $600 billion more than our current tax system per year.”

Another major step forward should be to implement the important proposal put forward by Bruce Ackerman and Anne Alstott in The Stakeholder Society: “As a citizen of the United States, each American is entitled to a stake in his country: a one-time grant of eighty thousand dollars as he reaches early adulthood. This stake will be financed by an annual 2 percent tax levied on all the nation’s wealth. The tie between wealth-holding and stakeholding expresses a fundamental social responsibility. Every American has an obligation to contribute to a fair starting point for all. Stakeholders are free [to] use their money for any purpose they choose: to start a business or pay for more education, to buy a house or raise a family or save for the future. But they must take responsibility for their choices. Their triumphs and blunders are their own.”

The federal government should spend more on social and jobs programs, environmental protection, and neglected needs abroad while our annual federal budgetary deficits should be brought down to sustainable levels. High growth rates will not provide sufficient revenue to the government. There are many ways to raise new revenues–closing down tax breaks for the rich, shifting taxes from things we want to encourage to things we want to discourage, taxing luxury items, closing corporate tax loopholes, strengthening the estate tax, and moving toward a more progressive tax structure.

A 2009 report by John Cavanagh and his colleagues at the Institute for Policy Studies proposed the following plan that would raise an additional $3 trillion in federal revenues over a five-year period without slowing the economy. That’s over double what President Obama currently proposes.

1. Repeal tax breaks for households with annual incomes over $250,000: $43 billion per year.

2. Tax financial transactions: $100 billion per year.

3. Eliminate the tax preference for capital gains and dividends: $80 billion per year.

4. Levy a progressive estate tax on large fortunes: $40–60 billion per year.

5. Establish a new higher tax rate on extremely high incomes: $60–70 billion.

6. End overseas tax havens: $100 billion per year.

7. Eliminate subsidies for excessive executive compensation: $18 billion per year.

Making sure that the bottom 99 percent of the population has a living wage makes the economy grow. They are the ones who spend the money that they get, not the top 1 percent.

 

2 Comments »

  1. […] Fixing the Economy « Nel’s New Day. […]

    Like

    Pingback by Fixing the Economy « Nel’s New Day « Central Oregon Coast NOW — December 25, 2012 @ 8:06 PM | Reply

  2. Many really interesting suggestions, some of which I had not heard before or thought of. Thought provoking. Thanks, Nel

    Like

    Comment by Central Oregon Coast NOW — December 25, 2012 @ 8:04 PM | Reply


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