Let’s ask candidates for President and Congress where they’ll find the resources to:

·       Strengthen economic security and freedom.  Provide affordable, quality health care for all.   

·       Expand alternative energy, stop global warming, save the environment. 

·       Create millions of good jobs.   

·       Rebuild our education systems, bridges & transportation, inner-cities, social services & other essentials of a decent society in the 21^st century.   

Contact the candidates.

Call, write, fax, email or meet them.  Tell them how this affects you and people you know. 

(For names and links: U.S. Senate - www.dscc.org, www.nrsc.org;
 U.S. House - www.dccc.org, www.nrcc.org.  
 President: www.BarackObama.com,  www.JohnMcCain.com.)    

Write letters to the editor.

(Google: “[name of your newspaper], letters to the editor” or see www.50states.com/news/)

Can we afford to pay for it?  YES, with middle- class tax cuts, but only if we: 

·        Restore justice to the tax system ⁽¹⁾ and invest the funds carefully, re-inventing government where needed without overlooking its many successes.  Rolling back the federal tax cuts enacted since 2001 will not be enough to finance the major investments we need. 

o   Tax corporations & the truly wealthy at rates more typical of the past 50 years – $380 billion. (approximate potential) 

o   Crack down on federal tax avoidance – $300 billion.  (Focus the IRS on corporations and individuals with large amounts of unpaid taxes, not the little guy.) 

o   Cut waste in the military budget - $200 billion. 

Total: $880 billion or 32% of total federal spending in 2007 (fiscal 
          year).  

·        Just as important, implement a real full employment policy ⁽²⁾.  We could reach full employment, or be close to it, more consistently than in the past.  The result would be higher productivity, wages and wealth, which automatically generate
more tax revenue.    

Two primary obstacles have been: (1) the Federal Reserve Board’s over-emphasis on inflation control, at the expense of full employment, and (2) the high value of the dollar, especially in relation to countries with artificially low currency values. 

On average, the “Fed” has kept interest rates higher than necessary.  This slows the economy by discouraging purchases by consumers  and investment in plant and equipment by industry.  The high dollar has made our exports substantially more expensive to other countries.  As a result, manufacturing lost an unprecedented 1.8 million jobs during the recent economic expansion.  (“- - Lopsided Recovery”, 9/11/07, ThomasPalley.com.)

Of course, these changes will be difficult.  But if we pressure the 2008 candidates and our elected officials, meaningful progress can be made in the next few years. 

FOOTNOTES:

Restore fairness to the tax system. 

·         If “the wealthy paid the same share of their income in taxes today as they did in 1977, annual revenues would jump by $200 billion.  Likewise if corporate income taxes were restored to the share of the economy that they averaged from 1950 to 2000, companies would pay $180 billion a year more.” “The Taxonomist: Loophole-Consolidation Program”, The American Prospect, Robert S. McIntyre, 12/01/03, http://www.prospect.org/cs/articles?articleId=6941. 

The subtotal of $380 billion is more than the federal government spent on job training, the environment, education, housing, nutrition and income security, combined, in 2006. www.nationalpriorities.org/tables/where-do-your-tax-dollar-go-notes-and-sources.html.  It is also more than the federal deficit for 2007 of $205 billion www.whitehouse.gov/omb/budget/fy2008/pdf/08msr.pdf.    

Other estimates of potential revenue sources include the following.  A total of $900 billion per year is spent on tax breaks, according to a recent report.  $300 billion of this goes for retirement and health care tax breaks that primarily benefit affluent people (e.g. tax breaks for 401-K’s without corresponding support for traditional pensions).  http://www.cbpp.org/7-9-08bud.pdf.   

A modest financial transactions tax (0.25 percent, a penny on every $4 invested), such as that of Britain, would generate $100 billion per year.  tpmcafe.talkingpointsmemo.com/2008/09/20/progressive_conditions_for_a_b/.  
Additional possibilities include elimination of the tax preference for capital gains ($95 billion), an income tax surcharge on incomes over $5 million ($105 billion), a progressive estate tax ($50 billion to start, more later) and elimination of offshore corporate tax havens ($100 billion).  www.thenation.com/doc/20081006/collins.

·         Federal tax avoidance costs us an additional $300 billion per year. Part of the solution will be to hire more IRS auditors and focus them more heavily on corporations and the very wealthy than on the middle class.  (Go where the money is.)  http://www.epi.org/newsroom/releases/2006/04/
060406-taxenforcement-pr-public.pdf)   

·         There is considerable waste in the military budget.  According to one estimate, $200 billion could be cut while, at the same time, building a more effective military by focusing our investment in the right places. www.ips-dc.org/reports/070608-justsecurity.pdf. 

·         Even after we make noteworthy improvements in tax equity, enforcement and waste reduction, it may still be necessary to run a sizeable deficit to finance the massive investment needed to rebuild our economy, society and maintain a sustainable environment.  But we will be paid back over time, because investment spending increases productivity.  If, on the other hand, we continue on our current trajectory of disinvestment, which has lasted three decades, America will become a second class society, possibly sooner than we think. 
            
Since a large, lengthy deficit may seem unacceptable, consider two points.  First, contrary to prevailing opinion, a moderate deficit is not harmful if it is a relatively small percentage of the total economy and is invested productively in things that really matter.  Successful businesses routinely borrow to make productive investments.  Second, there is a big difference between running a deficit to finance investment vs. consumption.  The increased productivity and widely shared prosperity that resulted from massive investment spending after World War II was key to working down the record national debt we started with in 1945.

The rebuilding of today’s America may require a significant increase in the national debt.  However, “The fact is that the ratio of public debt to GDP is actually quite modest by international and historic standards -- about 37 percent, compared to 120 percent after World War II. The urgent imperative now is to get the economy back on course -- and to do it by helping regular people. If the [debt] temporarily increases to, say 50 percent of GDP, that's far better than a severe and prolonged recession.”  Robert Kuttner, www.prospect.org//cs/articles?article=the_deficit_never_mind, 9/25/08.  Also see www.prospect.org//cs/articles;jsessionid=aMBcyh2ABL0fd8
WiCY?article=obama_vs_the_fiscal_fear_mongers.  Progressives and moderates inadvertently handcuff themselves when they succumb to the poorly-reasoned claims of “deficit hawks”, like Peter Peterson, who say, in essence, that we cannot afford to invest in the things we need most.      
 

·         For an analysis of why extreme deficit-cutting is a serious mistake, see Jeff Madrick, 2007, thenation.com/doc/20071022/madrick and  sharedprosperity.org/bp192.html. 

·         The recent deficit has been lower than we think.  In FY2007, it was $205 billion, or  1.5 % of Gross Domestic Product (GDP); below the 40 year average of 2.4%.  nationalpriorities.org/tables/where-do-your-tax-dollar-go-notes-and-sources.html, whitehouse.gov/omb/budget/fy2008/
pdf/08msr.pdf.  For 2008, it is projected at roughly $400 billion, or 2.8% of GDP.  whitehouse.gov/news/releases/2008/07/print/20080728-7.html.  “The 2009 deficit will be - - 3.3 % of GDP.  Even if you add in 1.3 % - - for the money borrowed from Social Security this – [is] - 4.6%, well below the 6.0 % deficit hit in 1983”, Dean Baker, prospect.org/csnc/blogs/beat_the_press_ archive?month=07&year= 2008&base_name=its_not_a_record_deficit_and_i. 

Implement a real full employment policy:  

·         Tax reform, by itself, will not solve the entire need for revenue.  But a full employment policy, without tax reform, is not sufficient either.  Even the best employment policy will have difficulty maintaining full employment 100% of the time ^(a).  There will still be downturns, hopefully less severe, during which wages and tax revenues will stagnate. 

·         Even during full employment, wages will not rise to the extent they once did, due to the growing disconnect between economic growth and wage increases ^(b).  Thus, in addition to better “macro-economic” policy, we need to raise minimum wages and expand unionization to increase the bargaining power of employees.  Government’s role as the employer of last resort should also be dusted off and updated, to make sure everyone who wants a job can have one.      
 (a)www.nytimes.com/2007/09/12/business/12leonhardt.html?_r=1&n=Top%2fReference%2fTimes%20Topics%2fPeople%2fL%2fLeonhardt%2c%20David&oref=slogin, David Leonhardt, “Larger Message Emerges From Summer Jobs Slump”, NY Times, 9/12/07.

(b) “Reviving Full Employment Policy: Challenging the Wall Street Paradigm”, by Thomas Palley, EPI Briefing Paper #191, June 22, 2007, http://www.sharedprosperity.org/bp191/bp191.pdf, p.2.  

·         Recent work by Thomas Palley (ibid.) and Jeff Madrick (ibid.) helps to update the concept of full employment policy.  Palley describes how the Federal Reserve Board has de-emphasized the pursuit of full employment since 1979.  Madrick rebuts the assumption of most Republicans and Democrats that the key to economic growth is keeping taxes down and completely eliminating the federal deficit.  Not too long ago, we thrived as the world’s strongest economy, when stronger government investment in essential public functions (“pump-priming” or “demand stimulus” rather than excessive deficit-cutting) went hand-in-hand with higher wages and taxes (on those who could afford to pay). 

·         James Galbraith documents the illogical nature of the Federal Reserve Board’s over-emphasis on inflation-control.  Testimony on Humphrey-Hawkins Full Employment and Balanced Growth Act [PDF] given before the House Committee on Financial Services, Washington, DC, 7/17/07, www.sharedprosperity.org/20070717_galbraith.pdf.    

·         At times, since 1992, the Federal Reserve Board has kept interest rates sufficiently low.  On balance, though, it remains overly fixated on inflation control at the expense of employment.  (Its 2% target rate of inflation is evidence.) It was criticized for keeping interest rates too low after 2002, thereby contributing to the housing bubble.  This could have been avoided by:  (1) better regulation of financial institutions to reduce the unsound credit practices partly responsible for the bubble (like escalating ARM’s).  We once did a better job of financial regulation.  (2) Intervention to lower the dollar’s value would have helped keep the economy afloat by creating more manufacturing export jobs.   Consequently, the Fed would not have needed to keep interest rates quite so low to prevent another recession.