Ten ideas for the economy
Posted on March 1, 2011
It seems I never go a day without a conversation about the economic crisis facing the nation. These are glum affairs and the conversation often seems to be more focused on who to blame — greedy Wall Street types, big business, greedy public employees gaming the system, gutless politicians, craven politicians, the Fed, and on and on — and the road map for going forward seems almost impossible to work out. Every ostensible solution to one part of the problem seems to create a bigger problem somewhere else. It’s all a bit overwhelming.
As I have said before, the beauty of a blog is that I get to opine about things whether or not I have any expertise. A sort of intellectual recklessness, I suppose, but one can stop reading at any time. So today, my (mostly borrowed) ten ideas for how to move forward. Within these ten ideas are three suggestions for raising revenues and five for cutting expenses.
1. Start with common sense, the kind our parents had. If ends do not meet in our households, we know we have to work on two things: bringing in more money and spending less. Those who have a rigid “no new taxes” stance or a rigid “don’t sweat the growing deficit” stance are ignoring our parents’ good sense.
2. Social Security is a relatively easy fix – stopping picking on it. While we will see a huge wave of retirees in the future as the Baby Boomers move through the pipeline, we can raise the ceiling on yearly wages subject to Social Security (a level that was set when it was almost unimaginable that people might make over $100,000 per year). Reset it to $200,000 and the problem is largely solved and the overwhelming number of Americans will not feel the pain of that increase. Means test so that no one with more than $100,000 of annual incomes gets a Social Security check and you further ensure solvency long into the future (if you paid into the system and now don’t get the benefit because you retired wealthy, get over it). Go to http://robertreich.blogspot.com/2009/05/truth-behind-social-security-and.html for a more cogent explnation.
3. Raise the marginal tax rate. Under a Republican, Dwight D. Eisenhower, the highest marginal tax rate was 91% (hard to believe, I know) and the country prospered. Reagan slashed it into the 20’s and we saw deficits balloon. Under Clinton the highest tax bracket went back to 39% and we ended his term with record surpluses. George Bush rolled back the rate to 36% (and fought two wars off the books) and deficits ballooned again. See a pattern here? As our parents would tell us, if we bring in more money we can pay our bills (see item #1 above). Raise the rate back up to 39% for those making more than $200,000 (almost no American would feel the pain as only the top 2% would pay more) and to 40% for those making more than $1m. This would produce over $1 trillion of new revenue over the next ten years. Don’t buy the “taxes of this sort stifle growth” myth. From 1951 to 1980 (when the highest rates were between 70% and 90%) average annual growth was 3.7%. From 1983 through the recession, when top rates ran between 35% and 39%, growth averaged 3%. (http://www.nhregister.com/articles/2010/08/17/opinion/rreich_814081710.txt)
4. Impose a small tax on stock transactions. The UK has such a tax and it is estimated that it could generate between $15b and $60b per year in new revenues. There are other benefits, such as introducing a bit of healthy “sand in the gears” to slow down the flow of computerized trades that actually make the market too volatile (http://wonkroom.thinkprogress.org/2010/05/07/ftt-245/). Stock trading moves capital and there is enormous economic benefit (we saw what happened when credit and thus capital started to freeze up), but it doesn’t actually produce anything. Making money by moving money is not the same as building a wall, teaching a child, assembling a circuit board, or welding a bridge — actual labor that contributes to society. So tax financial transactions — just a bit — and let Wall Street help solve the problem they helped create (more than “helped” some would say).
5. Cut spending on the military. Military spending accounts for between 28% to 38% of the annual federal budget depending on what non-DOD items you include. We account for 40% of global arms spending and that is six times larger than #2 spender, China. The OMB shows an increase from $300b spent in 2000 to $700b spent in 2011. Back out the cost of two wars and it still goes from $300b to $520b. Cut the non-war portion by 25% to $390b and it would still be about 25% higher than it was in 2000. End the wars and we gain another $180b.
6. Support “Obamacare” for starters. Many of those who tear their hair and rant over mounting deficits are also those who call for the repeal of what they dismiss as “Obamacare.” From an economic point of view, President Obama’s health care bill did not go nearly far enough in controlling costs, but objective observers do agree that it will bring down the deficit by $100b over the first 10 years and by $1 trillion between 2020 and 2030 (http://healthpolicyandreform.nejm.org/?p=3564). There is enormous work that has to be done to realize greater cost controls, but we have models for what success looks like (namely Kaiser Permanente and the VA) and the new health care bill at least sets up systems and processes for starting to tackle the bigger cost control issues. In the meantime, if you really care about the deficit and saving money, you should support Obamacare.
7. End corporate welfare to big oil. According to a recent study by the CBO (http://www.cbo.gov/ftpdocs/67xx/doc6792/10-18-Tax.pdf), the effective tax rate on oil companies is 9% while most of corporate America pays 25%. That makes it the least taxed of an any industrial segment while enjoying windfall profits.
8. End corporate welfare to agribusiness. We hand out over $15b in annual farm subsidies and 90% of it went to large corporations. Keep subsidies for family farms and small independents, but there is no reason Archer Daniels Midland and Cargill need taxpayer help.
9. Wrestle public employee pension programs back under control. Much can be said about this complicated issue, but most simply the benefits are too rich for the public to support. In many cases, they were negotiated when public salaries were indeed a lot lower and life expectancy was not as long. I don’t know what “reasonable” looks like, but I have friends who will retire from public service in their fifties with 80% of their salary. We have cops gaming the system and working endless details to pump up their last three years salaries and thus their pension (here’s an idea: start by basing pensions on base salaries only). A big part of the problem is that we allowed political leaders to underfund pension funds for years (by about 35% nationally for state plans), supporting a lack of budget discipline that has now caught up with us in a big way. Governor Walker is overreaching with his attempt to eliminate collective bargaining rights (and Americans clearly don”t support his view) and he is sort of a lackey in service to people like the Koch Brothers, but he is not wrong in saying that the issue requires more than a set of one-time concessions. It requires a more fundamental overhaul of the system. I really dislike hearing private sector employees say things like “I haven’t had a raise in four years, so why should they?” I don’t want the bar lowered to a lowest common denominator standard (we should be working to make sure that person gets reasonable raises), but the system is deeply out of alignment with what is reasonable.
10. Compassion. We will not be out of this economic mess for a long time and millions of good, hard working neighbors will suffer deeply. We can work our way through to recovery in a Darwinian fashion that ignores that suffering or we can inform our hard choices with compassion, making sure that the pain that must inevitably be shared does not fall disproportionately on those least able to bear it. Minister Jim Wallis has started a “What would Jesus Cut?” campaign (http://www.huffingtonpost.com/jim-wallis/what-would-jesus-cut_b_821555.html) that challenges things like the House’s proposed $758 million cut to the food stamp program that feeds hungry mothers and children. If you are willing to let children go hungry while supporting an ongoing tax cut for the very rich you simply have no claim to moral ground, high, medium, or low. You can’t cut grants to the poorest college students in the state and claim you are “for access and affordability.”
I know there are complexities to what I have listed. For example, cut defense spending by 25% and there will be job losses in the corporations that supply the military. I am choosing my poison and spending less on guns and more on butter (see, I did take Economics once) sounds more palatable to me. I have reconciled myself to having a smaller government than I would like — my fellow citizens just simply don’t want the kind of larger, government role with which I am more comfortable. (I may even be starting to agree more with them). The items I’ve listed actually reduce the role and size of government (smaller military, elimination of corporate subsidies) while bringing in more revenue and cutting expenses.
It’s what our parents would do.