We can also establish independent, public funding of campaigns that matches small donations and limits large ones—and the public now supports such a change. Under this proposal, federal candidates would collect a large number of small contributions from individuals in their home states or districts, and these contributions would be matched on a six-to-one basis by public funds. Anyone making a small donation would get a refundable tax credit of $25, each candidate’s public funding would be strictly capped at a certain amount, and all donations would be limited and disclosed.
And it is possible that the president of the United States will be elected by a majority of the voters rather than by the Electoral College. This is not a fantasy. States that send a majority of the electors to the Electoral College can pass legislation instructing their electors to vote for whichever candidate received a majority of the national popular vote. Ten states and the District of Columbia, which collectively have 165 electoral votes, have enacted the National Popular Vote Bill, which will be activated as soon as it has been enacted by a total of 270 electoral votes. Instead of the presidential candidates and campaigns focusing on the eleven states that now constitute the battleground, they will then have to focus on the states and media markets where large populations are concentrated, and every vote will count. That will enable candidates to build the popular momentum for reform so that we can begin to address the contradictions that hold America back. Restoring democracy and the power of a popular majority is what makes it possible to sideline the new billionaire oligarchs, the principal obstacles to reform.74
THE PRESIDENTIAL AGENDA
Though the momentum for reform has been building intellectually and through the concrete changes pushed by business, churches, and local leaders, it will fall to presidents to get the scale of reform necessary for this to be considered a new progressive era. It is the president who has to forge a politics and advance a mission that allows for America’s renewal.
What America will actually need to do to take on its economic contradictions is not that complicated. The unaddressed problems have been building up for a long time, but given what has worked historically, it is pretty clear what a president needs to champion to put the country on a very different path. “Simple changes—including higher capital-gains and inheritance taxes, greater spending to broaden access to education, rigorous enforcement of antitrust laws, corporate-governance reforms that circumscribe executive pay, and financial regulations that rein in banks’ ability to exploit the rest of society,” in Joseph Stiglitz’s straightforward list, “would reduce inequality and increase equality of opportunity markedly.” He adds simply reversing the “underinvestment in infrastructure, basic research and education at all levels.”75
Any Democratic president will call for the money changers to be expelled from the temple.
A new Democratic president will applaud the mayors and governors who are bringing critical changes and urge the country to devolve power and spending to the states, cities, and neighborhoods that are leading the reforms.
He or she will welcome Pope Francis and the religious communities that are allies in the struggle against poverty, strengthen local communities, and help children.
A Democratic president will applaud the business community that has rallied such broad support for comprehensive immigration reform, pre-K, and infrastructure. Those fundamental changes will dramatically affect the American economy.
Though perhaps most important, a Democratic president will speak about our national aspiration, not at all fearful that it will invite a greater government activism. America can build great things, can create a shared prosperity, and can ask that all contribute to the common effort.
The country, as we have seen earlier, is ready for a national project after our aspirations have been so diminished by austerity and the cramped conservatism that has dominated Congress and many states. The new president might quote Rosa DeLauro, who said:
The chapters of our American success story have always been written in stone and mortar, iron and steel, granite and fiber-optic cable. When Thomas Jefferson doubled the size of the nation with the Louisiana Purchase. When Governor DeWitt Clinton of New York, even during the financial crisis known as the Panic of 1819, pursued the Erie Canal for his state. When Abraham Lincoln invested in the Transcontinental Railroad, Franklin Roosevelt the Tennessee Valley Authority and rural electrification, Eisenhower the National Highway System.76
The agenda of any new Democratic administration will include a fundamental change in taxes, a new economic agenda for working women and working men, a new national approach to education, and a new commitment to an economy that operates at a fuller level and brings about full employment. Each is a nearly radical break from the current course but very much a part of the new common sense.
From 39.6 to CEO compensation
The Democratic reform agenda will include as a start a higher, simple tax rate on the top-income earners. That is a defining starting point for progressives that the public is clamoring for and makes possible their family and investment agenda. It is also the most effective thing they can do to mitigate inequality and fundamentally change the incentives for CEOs and companies.
The top tax rate under President Bill Clinton was 39.6 percent for all income. In other words, capital gains were taxed at the same rate as salaries and wages—removing many of the incentives for gaming the system. As we know, the Clinton decade was the only period since 1980 when those in the middle-income range made serious gains, where gains were more broadly shared, and where the bottom quintile and the poor did particularly well. Adopting that kind of tax reform sends a message about hard work being valued as much as investment at the heart of Democratic economic policies.77
The lesson is pretty clear: restore the top tax rate to 39.6 percent and defend the expanded earned income tax credit that Presidents Reagan and Clinton championed and the refundable child tax credit that George W. Bush expanded in his presidency. With President Obama having won a mandate twice for raising taxes for those earning more than $250,000, the next Democratic president can almost certainly win a mandate for this critical starting point.
Remember that the Affordable Care Act was paid for in part with a 0.9 percent Medicare surtax on employment income of more than $250,000 and a 3.8 percent investment tax on capital gains.
And with a Democrat and any bipartisan commission certain to propose raising the Social Security payroll tax cap—now $117,000—and with the median state income tax on the top 1 percent at 5.5 percent, the top rate will move to well over 50 percent.
Stiglitz cites economists who say that a 70 percent top rate would be most efficient, and that is what the top rate was before President Reagan enacted his breaks, Thomas Piketty points out mischievously and accurately.78
There is indeed an emerging consensus among all Democrats about a dramatically more progressive tax code. In his State of the Union address, the president proposed to increase the capital gains tax rate, to stop sheltering those with $100 million estates from inheritance taxes, and to place higher taxes for the wealthiest to the tune of $320 billion over 10 years. At the same time, the Democratic ranking member of the House Budget Committee announced the Democrats’ support for a financial transaction tax. And the Center for American Progress released a “Report of the Commission on Inclusive Prosperity,” cochaired by Lawrence Summers, that cites Thomas Piketty and calls for a “more progressive” long-term tax system. As a start, they propose tougher rules on corporations’ overseas income, taxing estates, and rooting out special-interest “tax expenditures.” In a separate interview, Summers proposes making the mortgage interest deduction a tax credit, instead of a deduction—which would dramatically shift the tax benefit from the top quintile to middle-class homeowners.79
That contrasts, of course, with the Republican presidential candidates who have assured their billionaire donors that they intend to cut their taxes further.
Reformers need to educate the publi
c about the appropriateness of inheritance taxes. Only five million Americans pay the inheritance tax at a top rate of 40 percent, and even still, the public is ambivalent about taxing in this way. For many, it looks like it is changing the rules after a lifetime of work or looks like a tax on small businesses.80
And the next Democratic president will have to build public support and alliances in civil society to take dramatic action on climate change. Major international corporations such as Nike and Coca-Cola are beginning to speak out about the costs of climate change. Exxon Mobil and Wal-Mart have already priced a carbon tax into their long-term budget, and other companies, such as Microsoft, Walt Disney, Google, and General Electric have also assumed a carbon tax in their strategic planning. A carbon tax should be used to affect incentives for turning to clean energy, not to address other public priorities—and thus any revenue should be fully returned to individuals in some method that builds support.81
The public, on the other hand, would quickly rally to a Democratic administration that was eliminating $500 billion of special-interest subsidies and tax breaks to support broad-based investment or long-term deficit reduction. The Congressional Budget Office has identified $1.5 trillion of “tax expenditures” in the federal budget. Many have a broad social and economic purpose. Many do not—and the top 1 percent of households get a disproportionate share of such breaks. They are nearly as important as the tariffs of an earlier era that invited special interests to feed at the trough.82
Also critical to the Clinton decade were the earned income tax credit and the refundable child tax credits that were expanded under President George W. Bush and President Obama. They reduced the number of working people and children in poverty and supplemented the income of low-wage workers. These are tools that work, and Democrats have proposed making the expansion of these credits permanent and indexed for inflation. And they have proposed greatly expanding the tax credits for child care, dependent care, and college tuition.
With “stagnant middle-class incomes,” CAP’s Commission on Inclusive Prosperity proposes a plan of “temporary tax relief” for those earning between $23,000 and $95,000—those that earn enough that they do not benefit from the existing signature policies for low-wage workers like the EITC. The commission supports a plan of short-term tax credits for the middle class.83
Congressman Chris Van Hollen, the ranking Democrat on the House Budget Committee, has proposed higher taxes on top earners and a financial transaction tax to finance a “paycheck bonus credit” for the working and middle class. Each worker would receive a tax credit of $1,000—or $2,000 in dual-income homes—each year to buttress family income.84
The last time the minimum wage was increased was in 2009, the last in a series of gradual increases from $5.15 to $7.25 an hour enacted in 2007. To keep up with inflation, the national minimum wage must rise well above the $10.10 proposed by President Obama and would have to be indexed to inflation so it does not lose its value, as it has over the past two decades. Democrats nationally are now supporting a national minimum wage of $12 an hour.
There is emerging consensus among progressives that reform has to include ways to foster greater unionization. The Commission on Inclusive Prosperity suggests that unions give employees in the middle quintile a “wage premium” of 20 percent. That will require a National Labor Relations Board that is creating a more favorable climate for organizing and a president of the United States who always highlights the value of worker representation. It will require that local officials take the lead in supporting unionization in their communities. And it will require that unions up their game in trying to represent working people in this new economy.85
The lesson from the Clinton decade and from Piketty’s account of an America with a much higher top tax rate is very clear. These policy levers work very well. We know how to reduce inequality and give CEOs different incentives while helping the poor and the middle class to do a lot better. As Stiglitz observes, “We can achieve a society more in accord with our fundamental values, with more opportunity, a higher total national income, a stronger democracy, and higher living standards for most individuals.”86
The goal of reform has to be to get corporations more focused on long-term performance and less focused on core competencies, the traditional way to maximize short-term stock-market gains. The current securitized system leads to the shedding of production and employees. To change the time horizons of corporations, reform has to break the link of CEO compensation from the short-term stock value. Progressives have also proposed dropping quarterly reporting, increasing transparency, restricting hostile takeovers, and expanding employee stock ownership. The last demonstrably increases company productivity and employee loyalty.87
Those lessons need to be brought into the reform of corporate governance. This is one of the most important steps toward rising wages, encouraging corporate investment, increasing research and development and production, and the creation of more apprenticeships and jobs. In one study cited by the Commission on Inclusive Prosperity, privately held firms invested about 10 percent of total assets, compared to just 4 percent of the publicly listed firms. Reform means changing the rules of corporate governance or changing the incentives to achieve a similar result, despite the securitization of American companies since the 1980s.88
The most important and practical step would be to go back to the original reform that barred companies from deducting CEO pay above $1 million—though this time, that exclusion should apply no matter what the form of compensation, including stock shares. There is no reason not to bar corporations from deducting any executive compensation over $1 million, and their corporate tax rate could be linked to reducing the ratio of CEO to average employee pay. Corporate boards need to be reformed so they operate independently of the CEO and so they include employee representatives, as in Germany.89
The federal government changed the laws and regulations in the 1980s and 1990s and helped produce this unique pattern of CEO compensation and declining investment. Reversing those reforms can produce a very different result and trajectory for the American economy.
Franklin Delano Roosevelt
The Roosevelt Institute under the auspices of Joseph Stiglitz brought together thirty-six prominent liberal economists from the universities, think tanks, the labor unions, and Congress to meet in Washington in April 2015. They discussed inequality and economic performance, with the purpose of getting to a policy agenda that would be released by the Roosevelt Institute. They were asked to pick policies in the areas of taxation, macro and monetary policy, financial markets and corporate governance, international trade and finance, mobility and opportunity, market power, and labor market institutions that would reduce inequality and improve economic performance. From this whole list, ten policies were selected as the top priorities for a political agenda.
The liberal economists’ list of policies looks very similar to the agenda that has emerged from this book to be addressed at the presidential level. The liberal agenda starts with raising the top marginal income tax rates, making sure income from wages and capital gains are taxed at the same rate, and introducing a tax on financial transactions. Indeed, that is the top priority that I address in the next section—as it is emerging as the starting point to addressing America’s deepest economic issues.
The liberal economists would then address the CEOs, corporations, and banks that are so unpopular with the public. Top of the agenda is reforming CEO compensation, which we know is central to the public’s new economic consciousness. Next, they would begin to address the financialization of corporations and the role and size of big banks that have produced less domestic investment and job creation and put the economy at risk.
These economists would raise the minimum wage to $15 an hour and reform labor laws to allow more workers to become unionized, going directly at the problem of jobs that don’t pay enough to live on. Combining that with $4 trillion in infrastructure investment and comprehensive immigration reform will
raise economic performance and create good-paying jobs.
Finally, the liberal economists would include a new package of work and family policies, including subsidies for child care for children ages zero to five and preschool education. That, too, is part of the liberal agenda.
The Franklin Roosevelt tradition remains very much alive in the emerging debate about what reforms can address our deepest problems.
Economic agenda for working families
With jobs not paying enough to live on, a reform agenda will include aggressive use of tax credits and increases in the minimum wage that can really raise wages. People are looking for help with affordable education and training, and relief from the overwhelming student debt burden.
While this may not seem radical, a Democratic president will have to affirm that he or she is protecting the existing social safety net, particularly for retirement—and may even advocate increased Social Security benefits. That will not please the pundits and elites whose retirement is not at risk and who will attack the president for coddling spoiled retirees. The president will be able to educate them about some facts of life. Life expectancy is not rising for working-class Americans, so raising the retirement age has very unequal and painful consequences. Working women will be getting lower Social Security benefits than men because they have worked fewer hours and interrupted work to take care of children. And with employers scaling back private pensions, two-thirds of Social Security beneficiaries sixty-five or older rely on it for the majority of their income.90
America Ascendant Page 42