Published July 30, 2014 on Josh Fauver’s Bayou State Socialist blog. Josh is the editor-in-chief of ATPR.
One of the more pressing matters facing our nation today is inequality, specifically income inequality. I think that, perhaps, we have become numb to the word “inequality”, which is a very frightening concept. Our great nation, this precious democracy, was founded on the principle that “all men are created equal.” Therefore, it would seem to me that the gross inequality we see today is wholly incompatible with the principles upon which this great nation was founded. My intentions are, over the course of this piece of writing to, identify the crisis that is income inequality, demonstrate how very real the problem of income inequality in this country is, show how very dangerous it is to the fabric of our democracy, as well as present a small series of valid workable solutions to it.
Over the last 30 years America has seen the gap between the richest in this nation and the poorest in this nation grow ever and ever wider. According to Emmanuel Saez, a professor of economics at the University of California at Berkley, income inequality in the United States has been increasing steadily since the 1970’s. His research shows that inequality in America has now reached levels that we have not seen in this country since 1928, which is to say since the time of the Great Depression.
To put this into perspective I’d like to present the following data. In 1928 the top 1% of American families earned 23.9% of all pretax income. By comparison the bottom 90% of American families earned 50.7%. Fast-forward to the post WWII, post New Deal, economy. By the year 1944 the top 1% of American families were earning only 11.3% of pretax income while the bottom 90% were earning 67.5%. For the next three decades these levels would hold, for the most part, relatively steady. Then, in the 70’s, something began to change.
Beginning in the 1970’s the income of the 1% began rising while the income of the bottom 90% began to slowly diminish. Over the last 30 years, as I said earlier, the gap between the wealthy and the poor has grown wider and wider. Saez’s 2012 research shows the 1% now earning 22.5% of all pretax income and the bottom 90% earning 49.6%. (The first time ever this group has earned less than 50% of the nation’s pretax income.) In fact, in 2012 the top 10% of earners took home more than half of the country’s overall income. (According to the New York Times.) The latest U.S Census reveals that 45 million Americans are now living in poverty, the largest number in the history of the United States.
Currently, as I type this essay, 1% of Americans have in their possession 40% of the nation’s wealth while the bottom 80% has only 7% of the nation’s wealth divided between them. While the top 1% takes home nearly 25% of the nation’s income annually, in 1976 they took home around 9%. That means in the last three decades the top 1% have nearly tripled their annual income. They own nearly 50% of all of the nation’s stocks and bonds while the bottom 50% of Americans own less than 1%. (0.5%) If you can believe it, today the top 1/10th of 1% in America earns nearly $0.12 of every $1.00 earned in this country. Between the years 1980 and 2005 80% of new income created in America went to the top 1%.
I say all of that, I quote all of those statistics to say this, the United States of America now has the most unequal distribution of wealth of any major industrialized nation in the world today. Not only do we have the most unequal distribution of wealth of any of the major industrialized nations in the world, we have the highest level of childhood poverty of any industrialized nation period. Nearly 25% of American children live in poverty. (22% or 16 million American Children.) (National Center for Children in Poverty.)It would appear that we are slowly slipping back into the economic system of the 1920’s, the economic system American workers fought so hard to escape.
What are the implications of this growing crisis of income inequality? Politically speaking, they’re unimaginable. You see, we identified earlier that the mid 70’s was the turning point of income inequality in America. That was the period of time when more and more wealth began flowing back towards the top one percent. Why is that relevant information politically? In the year 1976 the Supreme Court ruled, in the case of Buckley v Valeo that limits on expenditures during campaigns were unconstitutional and that money counted as free speech. This would be only the beginning of income inequalities’ effect on politics.
Money began to play a larger and larger role in the political process. The top 1% of Americans began having a larger and larger voice in the political arena. It didn’t take long for the incredibly wealthy in this nation, few as they may be, to have a louder voice than the working class. It is, as they say, the golden rule. “He, who has the gold, makes the rules.” Or as George Carlin once said of our political process now, “It’s a big club and you ain’t in it.”
In 2010 we would see yet another staggering implication of income inequality as it relates to our political process. This would again take place in a Supreme Court decision. The case was Citizens United v. FEC. (Federal Elections Committee) The court ruled, in effect, that corporations are people too; therefore their ability to spend money on behalf of candidates is protected as free speech via the 1st amendment. (A la Buckley v. Valeo.) It wouldn’t be until 2012 that we would learn just how staggering the implications of this decision would be. Though we had a pretty good idea as now not only would billionaires and millionaires have louder voices in the political arena than the average American, but so too now would billion dollar corporations.
Just what would be the implications of these two decisions on politics? In 2012 we learned. The FEC reported that more than $7 billion were spent on the Presidential campaign alone! That’s an increase of nearly $2 billion from 2008. $2 billion, that is the effect of Citizens United v. FEC. That’s over the course of just one election cycle! Who are the people donating this money? Billionaires and billion dollar corporations, that’s who. That means that the average voter has little to no, okay none at all, voice in the political process. Money talks, and it talks in dollar signs and decimal places.
That isn’t the only effect on our political process though. On April 2nd, as a sort of late April’s Fool’s joke, the Supreme Court made yet another decision concerning money and politics. McCutcheon v. FEC decided that the limit placed on how much individuals could donate during the course of an election cycle was unconstitutional. Where there had previously been a limit to how much one person could donate over the course of a 2 year election cycle, there will be no more. The 1% are now allowed to spend as much money as they would like in their attempt to sway elections. The voice of the 99% shrunk yet father!
These are the implications of inequality on our great democracy. Due to inequality we no longer have a democracy. We have an oligarchy. Politics has become about money, and the majority, the vast majority, of Americans do not have the amount of money to have a voice in the political process. Think back to the data presented at the beginning of this essay. The 1% possesses nearly 40% of the entire nation’s wealth. They’re able to spend, thanks to a series of Supreme Court decisions, as much money as they’d like to get candidates they like elected. The majority of Americans are having their voices drowned out by the voices of an elite few.
The effects of inequality in America are far reaching and not just limited to the realm of politics. Clearly when talking about income, the economy should come to mind. To have an income one must first have a job. (Perhaps not, but more on that later.) Fueling the income inequality and poverty crisis in the United States is an unemployment crisis, one that must be addressed if we are going to tackle poverty and inequality.
One of the first things we can do to address this massive inequality and poverty crisis that is plaguing our nation is to address the unemployment crisis. Currently the U.S unemployment rate in the United States is 6.3%, (according the Bureau of Labor and Statistics) that translates into approximately 9,799,000 Americans who are unemployed. Addressing this unemployment crisis would go a long way into solving our inequality and poverty issue. One of the ways that we could do this is by investing into green energy.
The Political Economy Research Institute claims that a recent report found that the U.S can create as many as 2 million new jobs by investing into a rapid green economic recovery program. Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy is a program that was prepared by the Political Economy Research Institute at the University of Massachusetts, Amherst, under commission by the Center for American Progress. The authors of the program (Robert Pollin, Heidi Garret-Peltier, James Heintz, and Helen Scharber) found that a short term stimulus package would create 2 million jobs nationwide over two years. The authors found the following concerning the effects of a $100 billion green economic recovery package:
“[It would] create nearly four times more total jobs than spending the same amount of money within the oil industry, and 300,000 more jobs than a similar amount of spending directed toward household consumption. [It would] create roughly triple the number of good jobs — paying at least $16 dollars an hour — as spending the same amount of money within the oil industry. [It would] reduce the unemployment rate to 4.4 percent from 5.7 percent (calculated within the framework of U.S. labor market conditions in July 2008). [It would] bolster employment especially in construction and manufacturing. Construction employment has fallen from 8 million to 7.2 million jobs over the past two years due to the housing bubble collapse. The Green Recovery program can, at the least, bring back these lost 800,000 construction jobs.”
But, I know some of you already want to know, what exactly is that $100 billion stimulus package going to fund exactly? Don’t worry, they address that specifically to. The Green Recovery program advocates using the $100 billion stimulus to do the following:
• “$50 billion for tax credits. This would assist private businesses and homeowners in financing commercial and residential building retrofits, as well as investments in renewable-energy systems.”
• “$46 billion in direct government spending. This would support public building retrofits, the expansion of mass transit, freight rail and smart electrical-grid systems, and new investments in renewable energy.”
• “$4 billion for federal loan guarantees. This would underwrite private credit that is extended to finance building retrofits and investments in renewable energy.”
There is more we can do though, than just the above stated proposal by the Political Economy Research Institute, to create jobs in green energy. In a January 25, 2012 address to the American people Dr. Jill Stein of the Green Party proposed what she called the “Green New Deal”. (Named after FDR’s New Deal) In her “Green New Deal” Dr. Stein proposes doing the following, “…provide grants and low-interest loans to grow green businesses and cooperatives, with an emphasis on small, locally-based companies that keep the wealth created by local labor circulating in the community rather than being drained off to enrich absentee investors.” Her focus on “small, local based companies” here is the key. If you’re asking why, don’t worry, she would go on to explain by saying the following, “These types of businesses provide a solid foundation for our prosperity – a prosperity that will not be offshored, outsourced or downsized, and that will be unaffected by the collapse of foreign credit markets.” Small, local jobs are not in danger of being outsourced overseas. These jobs are among some of the most permanent in our economy. She would go on to say,
“If you are someone who wants to start a small business or cooperative in the green economy or in providing for other vital community needs, you will find an ally in the Green Transition Program. Right now, our federal government subsidizes the rich agribusiness corporations and the oil, mining, nuclear, coal and timber giants at the expense of small farmers, small business, and our children’s environment. We spend tens of billions every year moving our economy in the wrong direction. We will instead redirect that money to the real job creators who make our communities more healthy, sustainable and secure at the same time.”
Dr. Stein would make another proposal for growing jobs in green energy and a green economy, “…redirect research money from fossil fuels and other dead-end industries toward research in wind, solar and geothermal. We will invest in research in sustainable, nontoxic materials, closed-loop cycles that eliminate waste and pollution, as well as organic agriculture, permaculture, and sustainable forestry.” By redirecting research funding from fossil fuels into greener and sustainable forms of energy we can potentially make breakthroughs in alternative energy. Simultaneously we can create thousands of new jobs.”
The economic benefits of investing in green energy and moving towards cleaner renewable forms of energy do not stop there though, as Dr. Stein would point out. By moving to cleaner forms of energy we can save money on healthcare as well! Greener energy and better, healthier food are essential to human health, or as Dr. Stein put it, “clean energy, healthy food, pollution prevention, and active transportation – are also the foundations of human health. Or to put it another way, greening our economy also reduces the drivers of preventable chronic disease, which consume a staggering 75% of health care costs.” By switching to cleaner renewable energy we can potentially curb healthcare expenditures by 75%! We can create a more economically prosperous and healthier America at the same time.
Another thing that we can do to create jobs is to invest in our now outdated and crumbling infrastructure. Without a doubt our infrastructure is out of date and in need of improvement and repair. There are millions of infrastructure jobs that need doing and there are millions of Americans that are in need of a job. Modernizing our infrastructure would immediately put millions of Americans back work and to boot would make our economy much more efficient.
A large factor in income inequality is low wages. Earlier I cited the latest U.S Census saying that currently 45 million Americans are living in poverty, the most in our nation’s history. Of that 45 million roughly 10.4 million falls into a category dubbed “the working poor”? (According to a recent report by the Bureau of Labor and Statistics) Why is it that more than 10 million working Americans are falling below the poverty line? Low wages are the biggest reason. According to the same BLS report about 66% of the working poor fell below the poverty line, at least in part, due to low wages.
To tackle income inequality and poverty it is essential that we address low wages. We must raise the minimum wage. According to a study done by the University of Massachusetts-Amherst economist Arindrajit Dube, raising the minimum wage would bring about roughly 5 million people out of poverty directly as well as reduce the number of the nation’s poor by 6.8 million when we account for the long term affects. Dube’s studies are using a model that raises the minimum wage to $10.10. According to him, “[The $10.10] increase would erase more than half of the increase in poverty we have seen during the Great Recession. We’re talking about roughly 5 million less people in poverty in America.” History has shown that raising the minimum wage has had a positive impact on the American economy as well. When Robert Reich was the Secretary of Labor in 1996 we raised the minimum wage under his direction. While corporate America predicted millions of job losses, over the next 4 years the country experienced more job gains than any comparable period in American history.
Unlike economist Arindrajist Dube, Robert Reich theorizes what the implications of raising the minimum wage to $15 an hour would be, rather than $10.10. Robert Reich, in fact refutes that a $10.10 minimum saying,
“$10.10 isn’t enough to lift all workers and their families out of poverty. Most low-wage workers aren’t young teenagers; they’re major breadwinners for their families, and many are women. And they and their families need a higher minimum. For this reason, a $10.10 minimum would also still require the rest of us to pay Medicaid, food-stamps, and other programs necessary to get poor families out of poverty — thereby indirectly subsidizing employers who refuse to pay more. A $15/hour minimum won’t result in major job losses because it would put money in the pockets of millions of low-wage workers who will spend it — thereby giving working families and the overall economy a boost, and creating jobs. “
The conservative argument would be that a $15 minimum wage would result in prices skyrocketing to reflect the increased minimum wage. Former Secretary of Labor Robert Reich addresses this issue as well, saying this:
“A $15/hour minimum is unlikely to result in higher prices because most businesses directly affected by it are in intense competition for consumers, and will take the raise out of profits rather than raise their prices. But because the higher minimum will also attract more workers into the job market, employers will have more choice of whom to hire, and thereby have more reliable employees — resulting in lower turnover costs and higher productivity.”
Like Robert Reich said, most of the minimum wage earners in this country are not teenagers, they’re the major breadwinners for their families or respective households. According to a recent report by the New York Times the average age of a minimum wage earner is 35. According to that same report 88% of minimum wage earners are at least 20 years old, half are older than 30, and a third are at least 40. Many are women, many of whom are single mothers. These people need a higher minimum wage just so that they can make ends meet. We as a nation should guarantee that if you work hard that you will not live in poverty.
History and some of the brighter minds in economics today agree, raising the minimum wage will both lift millions of Americans out of poverty and give our economy a shot in the arm. A $15 minimum wage would go a long way in reducing the poverty rate, reducing the unemployment rate by creating new jobs, and beginning to funnel the wealth that was stolen by the wealthy back into the working and middle class. A $15 minimum wage would be a wonderful first step in beginning to close the grossly large income inequality gap that has been currently growing ever larger each and every year.
Another thing that we can do to begin to address income inequality and poverty in this country is address one of the major side effects of poverty, homelessness. More than 3.5 million Americans experience homelessness in the United States each year according to the National Law Center on Homelessness and Poverty. Leaving the homeless out on the streets, recent studies have shown, is costing American taxpayers more than housing them would. The Central Florida Commission on Homelessness released a new study showing that, when accounting for a variety of public expenses, Florida residents pay $31,065 per chronically homeless person every year they live on the streets. The most recent count found 1,577 chronically homeless living in three central Florida counties. The result is tax payers paying nearly $50 million every year to let homeless people stay out on the streets.
There is, however, a much cheaper alternative to leaving the homeless out on the streets. Giving the homeless housing and supportive services, that same study found, would cost Florida taxpayers just $10,051 per person to provide them with a permanent place of residence and supportive services like job training and healthcare. That is roughly $21,000 less than it costs to leave the homeless out on the streets. Central Florida alone would save $350 million over the next decade if they took this approach to combating chronic homelessness.
A major problem is that shortages of low-income houses continue to persist. For every 100 households of renters in the U.S that earn “extremely low income” (30% of the median income and less) there are only 30 affordable apartments available. (According to a report from the National Low Income Housing Coalition) According to that same report, despite the fact that 29% of renter households live below poverty, and despite the fact that a quarter of renters have extremely low income, most newly constructed units are for high income households, while older units are swiftly being upgraded to serve a higher income market.
We have to ask ourselves the question, what is the reason behind the massive shortage of affordable housing? According to Jill Sevren, a board member at Panza, a non-profit organization that sponsors a tiny-house project called Quijote Village, “The typical development for extremely low-income housing is trending toward $200,000.” With housing for the extremely low-income costing so much to develop, it is no wonder they are in such short supply. But there is an alternative, a much more cost effective alternative, to $200,000 housing for those with low-income: the aforementioned “tiny-house project.”
While low-income housing and services would already cost tax payers less than leaving the homeless out on the streets, as the previously cited study shows, tiny-house projects would make providing low-income housing even more cost friendly. This past year, in Newfield, New York, volunteers built 18 16-by-20 houses for a group of (formerly) chronically homeless men. Each house cost about $10,000 to build. In Maddison, Wisconsin a group of Occupy protesters have also started a tiny-house village. They average cost per unit was half of what New York’s was. They were able to construct a 99 square foot tiny-house for $5,000. (Houses complete with a propane heater, compost toilet, 80-watt solar panel array, and 1ft porch) One tiny-house village, in Olympia Village was a bit more costly. The 30 structure village had a cost of around $88,000 per unit. But even the most costly of tiny-house villages, the $6 million effort to build a 200-person tiny-house village in Austin, Texas, doesn’t rival the current cost of homelessness to tax payers. ($10 million per year in Austin, as reported by YES!)
Another major way we could reduce the grossly large poverty rate in this nation is by following the example of the Nordic countries of Europe. Several of those Scandinavian countries have made very encouraging strides in ending poverty. I don’t mean to suggest they have found some fashion of a cure-all that has provided everyone in the country with a high paying job. No, not at all. What they do is simply provide their poor with more money and more social services. The Nordic countries of Sweden, Denmark, and Finland all have very similar poverty rates to the U.S before tax-payer funded social programs (universal healthcare among other things) kick in. (U.S 28%, Sweden 28%, Denmark 24%, Finland 32%) After the social programs are taken into account, these countries have a poverty rate that is about half of what the U.S has. (U.S 17%, Sweden 9%, Denmark 6%, Finland 7%) (According to OECD)
One of the above mentioned social programs instituted by the Nordic countries in Europe is universal healthcare. As a part of the income inequality and poverty crisis in this nation is a healthcare crisis. Some 44 million Americans remain uninsured. (We briefly mentioned the cost of this to taxpayers when we discussed homelessness earlier) A study done by the American Journal of Public Health found that nearly 45,000 American deaths a year are associated with a lack of health insurance. The same study found that uninsured, working-age Americans are at a 40% higher risk of death than those who are privately insured. For a nation that boasts it has the best healthcare in the world these figures should be unacceptable. More so should it be unacceptable when one takes into consideration we are the only major industrialized nation in the world that does not have, what I believe is the solution to this crisis, a single-payer healthcare system.
Some people will chime “We don’t have the money for that!” but that is just simply not true. We do, in fact, have the money for a single-payer healthcare system. In fact a recent study (2013) done by economist Gerald Friedman, Ph.d University of Massachusetts, Amherst, found that it could be much cheaper. Friedman found the following, “Under the single-payer system created by HR 676 [the Expanded and Improved Medicare for All Act, introduced by Rep. John Conyers Jr., D-Mich.], the U.S. could save an estimated $592 billion annually by slashing the administrative waste associated with the private insurance industry ($476 billion) and reducing pharmaceutical prices to European levels ($116 billion). In 2014, the savings would be enough to cover all 44 million uninsured and upgrade benefits for everyone else.” You see we do have the money, and change left over, to provide universal healthcare.
Friedman would go on, in his findings, to describe the benefits from the savings we would experience by reforming our healthcare system into a single-payer, Medicare for all system, “Specifically, the savings from a single-payer plan would be more than enough to fund $343 billion in improvements to the health system such as expanded coverage, improved benefits, enhanced reimbursement of providers serving indigent patients, and the elimination of co-payments and deductibles in 2014.” We could expand coverage (to some 44 million uninsured Americans), improve the benefits, enhance reimbursements, and eliminate co-payments and deductibles; this would not only provide coverage to those who don’t have it, it would make healthcare more affordable for the millions of working Americans who struggle to pay for it.
According to OECD the U.S spent $8,233 on healthcare per capita in 2010. Our Nordic friends (Norway, Switzerland, and the Netherlands) were the next highest spenders, but they spent at least $3,000 less per person than the U.S did. (Finland spent $4,982 less than the U.S did.) We devote more of our GDP (17.6%) to healthcare than any other country. The average country devotes about half of that. (9.5%) There is, however, something other than just providing universal coverage that countries are doing to keep their cost so much lower than ours.
PBS conducted an interview with Mark Pearson, head of Division on Health Policy at OECD, in 2012. Over the course of the interview they covered several different aspects of the healthcare policies of various countries in comparison with that of the U.S. The question then arose, “What are Japan and France doing, for instance, to keep down their costs?” The answer:“France and Japan demonstrate that it is possible to have cost-containment at the same time as paying physicians using similar tools to those used in the U.S. There are three key things that stand out when you compare these countries to the U.S.:
• They use a common fee schedule so that hospitals, doctors and health services are paid similar rates for most of the patients they see. In the U.S., how much a health care service gets paid depends on the kind of insurance a patient has. This means that health care services can choose patients who have an insurance policy that pays them more generously than other patients who have lower-paying insurers, such as Medicaid.
• They are flexible in responding if they think certain costs are exceeding what they budgeted for. In Japan, if spending in a specific area seems to be growing faster than projected, they lower fees for that area. Similarly, in France an organization called CNMATS closely monitors spending across all kinds of services and if they see a particular area is growing faster than they expected (or deem it in the public interest), they can intervene by lowering the price for that service. These countries also supplement lowering fees with other tools. For example, they monitor how many generic drugs a physician is prescribing and can send someone from the insurance fund to visit physicians’ offices to encourage them to use cheaper generic drugs where appropriate. In comparison, U.S. payment rates are much less flexible. They are often statutory and Medicare cannot change the rates without approval by Congress. This makes the system very inflexible for cost containment.
• There are few methods for controlling rising costs in private insurance in the U.S. In running their business, private health insurers continually face a choice between asking health care providers to contain their costs or passing on higher costs to patients in higher premiums. Many of them find it hard to do the former.”
A combination of universal healthcare and simple policies like the ones detailed above being employed by France and Japan keep their annual expenditures on healthcare much lower than those of the U.S. Where the U.S spends, as previously stated, $8,233 per capita France spends only $3,974 per capita and Japan spends even less at $3.035 per capita. By adopting common sense policies like these we could provide everyone with access to basic healthcare, ensure it as basic human right, and save billions of dollars annually.
Another social program that we can institute is a National Basic Income Guarantee. Some would argue that a National Basic Income Guarantee is to do nothing more than to deliver welfare and would eliminate any incentive to work, which is incorrect. The purpose of a provision of a guaranteed income that is available to all adults, not restricted by means testing and not dependent on employment status, is to provide a foundation in the evolution of an equitable economy. Ideally the Basic Income would be enough to address the basic needs of most in the population while still providing incentives to add to that guaranteed income.
In short, the program is one to ensure that everyone’s basic necessities are taken care of. Every single American would get a check from the federal government that would help to ensure their economic security. (Social security for everybody.) As stated earlier the intention is not to eliminate an incentive to work. Ideally the National Basic Income Guarantee would be set at about the poverty level. Those who could would very likely look for work. Not many would sit and choose to just live in poverty. At this time though a program like this is absolutely necessary when we consider the unemployment levels and the poverty levels in America.
We have already seen some forms of a Basic Income Guarantee established here in the United States. Alaska for instance has something like a Basic Income Guarantee in the Alaska Permanent fund. The Alaska Permanent Fund has existed since 1976. In 1999 there a proposal put on the ballot to do away with the Alaska Permanent Fund, 80% voted to against the proposal.
Another of the social programs instituted by the Nordic countries (mentioned above) is the subsidization of education. According to the Pew Charitable Trust’s website, subsidyscope, the deductibility of student loan interest is costing taxpayers $1.4 billion. Rather than taking that $1.4 billion and using it to directly make higher education more affordable, students take on large amounts of student loan debt and then we alter the tax code to make that debt $1.4 billion cheaper. This is an example of what Suzanne Mettler calls “the submerged state. The submerged state is when the government, to quote Mettler, ““shunned the outright disbursing of benefits to individuals and families and favored instead less visible and more indirect incentives and subsidies, from tax breaks to payments for services to private companies. These submerged policies…obscure the role of government and exaggerate that of the market.”
How much would it cost to make higher education (colleges and universities) free? According to Jeffrey Sachs, in his book The Price of Civilization, somewhere between somewhere between 15 to 30 billion dollars. To compare, what are the costs of subsidizing education through our tax code? (the submerged state) According to Mike Konzcal of the Roosevelt Institute, it’s probably a lot higher than one might think. Konzcal writes,
“There’s already the $1.4 from the interest exemption. Also from subsidyscope, there’s the exclusion of employer-provided educational assistance ($1.1 billion), exclusion of interest on student-loan bonds ($0.6 billion), exclusion of scholarship and fellowship income ($3.0 billion), exclusion of tax on earnings of qualified tuition programs: savings account programs ($0.6 billion), the HOPE tax credit ($5.4 billion), the Lifetime Learning tax credit ($5.5 billion), parental personal exemption for students age 19 or over ($3.4 billion), and state prepaid tuition plans ($1.75 billion). There’s also the stimulus’s American Opportunity Tax Credit ($14.4 billion) and some part of the deductibility of charitable contributions (education) ($4.9 billion).”
Even when excluding the last two that is $22.75 billion we are paying, through the tax code, to make the crushing debt of student loans easier to bare. That falls in right in the middle of the estimated cost of making public higher education free.
Koncal went on to write, “But there is a choice in how to provide mass higher education. We can either use resources to reduce the price of the good upfront — make college free — or to subsidize the purchase of the good — here through the numerous hoops of the tax code. The amount of money we take from the tax code to try and make student debts and runaway tuition more bearable could be used instead to just provide free public colleges.” No obviously, there are pros and cons to both methods. The thing to focus on though is for whom are the pros and the cons. In the case of subsiding the purchase of the good (through the tax code) the people who are extremely wealthy and pay more taxes are better off as they are able to afford accountants and tax lawyers who will understand how to take advantage of these benefits. If, instead, we reduce the price of the good upfront, make college free, it benefits those of us who come from low income, working, or middle class socioeconomic backgrounds.
The question that naturally should have come up at this point is, “Well that all sounds nice, but how do we pay for it?” After all, I’ve advocated for a $100 billion stimulus package for green jobs and you may have noticed we came $7.25 billion short of estimated cost of tuition free higher education. So, where does the money come from? Well two places actually! First, from closing the loopholes that allow the extremely wealthy to hide taxable income and secondly, from a new tax to be placed upon Wall Street’s financial transactions.
Just how much revenue are we missing out on by those who hide their taxable income in off shore accounts? According a recent report by U.S. PIRG, $150 billion. Closing the loopholes in our tax code that allow for the extremely wealthy and large corporations to hide their taxable income in off shore accounts would, all by itself, provide the revenue necessary to pay for the $100 billion stimulus package as well as the extra $7.25 billion to make college tuition free as well as leave $42.75 billion in new revenue unspent. But, I don’t want to stop there. To ensure that all of the programs I’ve advocated for here are totally paid for I have to generate still more new revenue and I have a plan to do just that.
The Robin Hood Tax, or financial transactions tax, is less than 1% tax (0.5%) on Wall Street transactions. This tax wouldn’t affect the average American. It would only affect the large corporations and banks on Wall Street, in large part, are responsible for the economic crisis that has resulted in millions of Americans losing their jobs and falling into poverty. This tax is easy to enforce and it is hard to avoid. The institutions that would be affected by it are more than capable of affording it and the systems are in place to collect it. The U.S Congressional Joint Committee on Taxation estimates that $43 billion per year would be raised by a financial transaction tax on stock trading alone. An FTT that covers stocks, bonds, foreign exchange, commodities, and derivatives would be expected to raise at least twice as much on an FTT on stocks and bonds only. Let’s take the least, which means a reasonable estimate for a Robin Hood (FFT) would be $86 billion.
After closing the loopholes and creating the new Robin Hood tax and after passing the stimulus package and restructuring the way we subsidize higher education we would have, approximately, $128.75 billion in new revenues. That $128.75 billion would be, in my estimation, more than enough to cover any unforeseen costs in the programs that I detailed above to reduce and eventually eliminate poverty and inequality in America. If you recall, all but two of the solutions I presented actually included saving the tax payers money.
On top of the addition of closing loopholes and implanting the Robin Hood tax we could, as our conservative friends beg us to do, cut some spending to help pay for all of these reforms. One area in which we could quickly cut excess spending is our bloated military budget. The projected military budget for 2015 is $756.4 billion. To put that into perspective, globally it accounts for nearly 40% of the world’s total military expenditures. The next closest spender is China, spending near $200 billion. In 2014 we spent $3.2 billion on the war in Afghanistan and an additional $89.1 billion on the war in Iraq. (total of $92.3 billion on the wars.) By ending the wars in the Middle East we can quickly cut close to $100 billion out of our military budget.
A recent report by Foreign Policy in Focus revealed that it costs the United States roughly $250 billion every year to maintain our overseas military bases. By closing our military bases that are scattered all around the globe and bringing the 1/3 of our military personnel that are overseas back home we can cut an additional $250 billion out of our military budget. That would bring our military budget down to approximately $406.4 billion, which is still more than double what the next largest military spender is spending annually.
You see, at the end of the day, we in this country have it within our capability to fight poverty and drastically reduce income inequality. We can create an economy that is bright, vibrant, and that works for all of us, not just a select few. All that it takes is a little creativity, ingenuity, and the gumption to get up and try. If all of us, if the 99% of us in this nation who are not millionaires and billionaires, collectively raise our voices then no amount of commas and zeroes can drown us out.