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The 99%'s Deficit Reduction Proposal: How to create jobs, reduce the wealth divide and control spending

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opednews.com Headlined to None 11/21/11

Prepared by Occupy Washington DC / November 2011 http://october2011.org/blogs/kevin-zeese/99-s-deficit-proposal-how-create-jobs-reduce-wealth-divide-and-control-spending /

The disconnect between Congress and the people is vast.  For decades, Congress has been passing laws that benefit the 1%, their campaign donors and big business interests, rather than creating a fair economy that serves all U.S. citizens. With this report Occupy Washington, DC shows that Congress is out of touch with evidence-based solutions, supported by the majority of Americans that can revive the economy, reduce the deficit and wealth divide while creating millions of jobs.

OccupyWashingtonDC.org seeks a major transformation to a participatory democracy in the economy as well as in government. For forty years, concentrated corporate interests have acted with intent to take over government and other institutions. We seek an end to the rule of concentrated wealth and corporate power by shifting control, wealth and ownership to the people.

This report puts forward evidence-based solutions that will re-start the economy and avoid placing financial burdens on future generations.  For the most part these ideas are not new.  They are well accepted by economists and are consistent with the views of super majorities of Americans on key issues. Further, more than three-quarters of U.S. citizens say the country's economic structure is out of balance and "favors a very small proportion of the rich over the rest of the country." They are right. The solutions to our economic crisis are evident but they are blocked by those who profit from the status quo and control elected officials through the corrupt U.S. political system and its money-based elections.

The elites in Washington, DC seek to erase deficits that were caused by increases in war and military spending, tax breaks for the wealthy and corporations, the increased cost of health care, as well as bank bailouts, and increased costs and lost revenue from the economic collapse. The bi-partisan elites seek to cut $1.2 trillion in deficits even though there is no outcry for such cuts or evidence in the economy that they are urgently needed.  They are proposing cuts in services to seniors, students, the poor and middle-working class households who did not cause the crash but already suffer from its consequences. This report shows that we can get the economy moving, reduce the wealth divide and control government spending while helping the 99%.

This report should not be considered the demand of the Occupy Movement. It was prepared [1] by one Occupation, Freedom Plaza in Washington, DC and it does not reflect even that Occupation's full demands.  Most of this report provides solutions to the deficit questions the Congressional Super Committee is attempting to address while also re-starting the economy.  The difference between the Occupied Super Committee report and the Congressional Super Committee report will be stark and further demonstrate the corruption and dysfunction of government.  While this report's recommendations would benefit the 99%, the report that will come out of the congressional Super Committee will benefit the 1%.  

Creating a Fair Tax System That Shrinks the Wealth Divide

The United States does not have a lack of financial resources; it has an intentionally unfair distribution of resources. The federal income tax has become less progressive and the rate paid by the wealthiest has been cut dramatically in recent decades.  From 1944 through 1951, the highest marginal tax rate for individuals was 91%, increasing to 92% for 1952 and 1953, and reverting to 91% for tax years 1954 through 1963. In 1964, the top marginal tax rate for individuals was 77%. From 1965 through 1981 the top rate was 70%. The top marginal tax rate was lowered to 50% for tax years 1982 through 1986 and today it is just 35%.

The tax on investment income, capital gains, has also been dramatically reduced.  The maximum statutory rate on long-term capital gains was 28% in 1991, 20% in 1997 and has been merely 15% since 2003.

The wealth divide has become extreme over the past three decades and tax policies have exacerbated this trend; much of the tax code exemplifies policies for the 1% at the expense of the 99%.  The wealth divide is one of the foundational reasons why the economy no longer works and is in steady decline for most people in the United States. The tax code inadequately funds government, but that is the result of unfair tax cuts, not because America is broke (it isn't). As Andrew Fieldhouse of the Economic Policy Institute testified "Income per capita has jumped 66% over the past 30 years, and is projected to grow another 60% over the next 30 years." The country needs to put in place policies that reduce the wealth divide and share wealth fairly so that when the economy grows it benefits all citizens, not just the 1%.

The recommendations below begin to correct the unfair policies of the last three decades, but these are only first steps to the transformational changes that are needed. 

  • Tax the highest income households: From 1960 to 2004, the top 0.1 percent of U.S. taxpayers -- the wealthiest one in one thousand -- have seen the share of their income paid in total federal taxes drop from 60% to 24.3%. America's highest income-earners -- the top 400 people who have wealth equal to 154 million Americans -- have seen their federal income tax drop from 51.2% in 1955 to 18.1% in 2008. If the top 400 paid as much of their incomes in personal income tax as the top 400 of 1955, the federal treasury would have collected $50 billion more in revenue from just those 400 taxpayers. If the top 0.1% of taxpayers -- Americans with incomes that averaged $4.4 million -- had paid total federal taxes at the same rate as the top 0.1% paid these taxes in 1960, the federal treasury would have collected an additional $250 billion in revenue.
     
  • Merely not extending the Bush tax cuts would add nearly $500 billion each year in tax revenue.  Thus in just over two years the goal of the deficit committee would be met. This would be insufficient to correct the wealth divide and does not go as far as Occupy Washington, DC advocates.
     
  • A tax of a half of a percent or less on Wall Street speculation could raise over $800 billion in a decade. The Speculation Tax on the purchase of stocks, bonds and derivatives would be a tiny tax with a big impact.  People in the U.S. pay much higher taxes on purchases of food and clothing; it is only fair that the wealthy pay taxes on purchasing wealth instruments.
     
  • A fair tax on capital gains, treating it as ordinary income would raise $1 trillion over a decade. Wealth-based income and work-based income should be treated equally under the law as it used to be. Warren Buffet has received a great deal of attention for pointing out that he pays a lower tax rate than his secretary or anyone who works for him. The reason for this is that investment income is taxed at a much lower rate than income from labor.  The United States needs to tax wealth more and work less. 
     
  • Congress should enact a "pure worldwide" tax system, in which all profits of U.S. corporations, whether they are generated in the U.S. or abroad, would be taxed by the U.S. This would end "deferral," i.e. where taxes are deferred until money is brought back into the United States. U.S. corporations would continue to receive a credit against any taxes they pay to a foreign government (the foreign tax credit) so that profits are not double-taxed. Under a pure worldwide tax system, corporations would have little or no tax incentive to move jobs offshore because the U.S. would tax profits of corporations no matter where they are generated. The Treasury estimates that deferral of U.S. taxes on offshore corporate profits costs close to $50 billion each year, and many experts think this estimate is substantially understated.
     
  • Ending deferral does not even address the hundreds of billions lost through tax havens. Tax havens should be shut down through the passage of the Stop Tax Haven Abuse Act.  In fact, the U.S. Treasury estimates this costs $100 billion each year. In 2006 the U.S. Senate Permanent Subcommittee on Investigations reported that Americans now have more than $1 trillion in assets offshore and illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes.
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  • Closing corporate tax loopholes would return the fair share of taxes paid by corporations to the funding of government. Declining corporate taxation is another prime factor in increasing deficits. Corporate income taxes have fallen from roughly 4.8% of GDP in the 1950s to only 1.8% of GDP over the past decade. Ending just two large breaks, deferral of overseas revenue and accelerated depreciation would raise about $114 billion over a decade. The Treasury Department lists $365 billion in corporate tax breaks being gifted annually -- that's $3.65 trillion over the next 10 years. Due to tax loopholes, corporations pay record low tax rates -- they actually pay 21% on average. Indeed, a recent report by Citizens for Tax Justice found that Wells Fargo received $18 billion in tax breaks, while both Verizon and General Electric paid negative taxes.  Earlier Citizens for Tax Justice reported that 12 major companies which together made $171 billion in profits from 2008-2010 paid a negative $2.5 billion in taxes, thanks to $62 billion in tax subsidies. 

The taxes described above would generate at least $600 billion annually.  The goal of the Joint Deficit Committee of $1.2 trillion over ten years could be met in two years. The United States has more than enough wealth to meet the needs of its people.

Cutting Spending for Economic Security 

  • Military spending, found in the Department of Defense and other departments, has increased dramatically during each year that George W. Bush and Barack Obama have been president, roughly doubling during the past decade both as measured in real dollars and as a percentage share of discretionary spending.  Military and related "security" spending is now at over $1 trillion per year and comprises well over half of federal discretionary spending.  It is also very nearly equal to the military spending of all other nations on earth combined. Ending our two most costly wars in Iraq and Afghanistan before the 2013 fiscal year budget would save $1.8 trillion, as compared with ending those wars on the currently planned schedule, with savings of $108 billion per year. 
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  • The U.S. should only spend what it needs to defend itself. The military budget can be cut significantly by replacing private contractors, closing some of the more than 1,100 foreign military bases and outposts and eliminating weapons systems many of which the Pentagon says it does not need.  
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  • The Sustainable Defense Task Force recommended modest cuts of $1 trillion over the next decade, not counting savings from ending the current wars. U.S. military spending could be cut by 80% and still be comfortably well ahead of any other nation's military spending. See Creating Jobs and Restarting the Economy below on how these funds could be used to create jobs, restart the economy and provide much-needed services and infrastructure to the country.
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  • Corporate tax subsidies through tax breaks and giveaways are a form of spending that needs to be cut. [2] The U.S. needs to end corporate tax subsidies and repatriate overseas funds. According to Citizens for Tax Justice, the 280 most profitable U.S. corporations received tax subsidies amounting to $222.7 billion from 2008-2010. These companies sheltered half their profit from taxes. The result: 30 companies paid less than 0 taxes despite $160 billion in pre-tax profits; 78 of the 280 companies enjoyed at least one year in which their federal income tax was zero or less; weapons maker's paid a mere 10.6 percent rate in 2010; financial services received the largest share (16.8 percent) of all federal tax subsidies over the last three years.
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  • Negotiating better prices with Big Pharma would save more than $200 billion over ten years in pharmaceutical costs. Reforms of Medicare could offer much larger savings. Expanding to an improved Medicare for all system would control the cost of health care spending while covering all in the United States reducing significant financial burdens often resulting in bankruptcy and foreclosure. 

Creating Jobs and Restarting the Economy

One in six people who would like a full-time job are unable to find one.  The unemployment rate of 9% greatly underestimates unemployment.  If the pre-1994 measures were used, e.g. including discouraged workers who want jobs, as well as part-time workers who want full time jobs the underemployment and unemployment rate would be 23%.  The measures listed below would effectively create jobs and restart the economy. Job loss means less tax revenue and more expenditure by the government. A critical ingredient to reducing the deficit is job creation.  

  • One million jobs could be created annually by writing down all underwater mortgages to market value.  Correcting housing mortgages to the real value of homes would inject $71 billion per year into the economy and save families $6,500 per year on mortgage payments. This would also fix the housing crisis which is an anchor holding back any recovery, according to a new report by The New Bottom Line.  One in five mortgage holders owe more on their mortgage than their home is actually worth. Banks should not continue to be able to profit from housing bubble prices -- a bubble they created with their poor and unethical lending practices. Adjusting mortgages to the real value of homes is a fair way to fix the housing market. 
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  • Failure to stop the foreclosure crisis will ensure a stalled economy.  It is an essential step to economic repair. This could be done without Congress as Fannie and Freddie together hold $1.5 trillion in housing loans or mortgage-backed securities which could be directed to fix the mortgages.  The Federal Reserve has just under a trillion and could unilaterally correct loans to reflect real value. And, the banks could be pressured. Last year, the nation's top six banks paid out more than twice the cost of re-writing mortgages to make them fair ($71billion per year) in bonuses and compensation alone ($146 billion in 2010). The nation's banks are sitting on a historically high level of cash reserves of $1.64 trillion.
     
  • A fundamental reason for job stagnation is relying on the private sector to create jobs and refusing to engage in direct government job creation in the public sector. According to Business Week, "Since the end of the recession, government employment--including federal, state, and local jobs--has fallen by roughly 600,000. State and local governments have particularly felt the pain, according to a report released this week by the Census Bureau, which shows that there were over 200,000 fewer state and local government jobs in 2010 than in 2009." The most recent jobs report shows a continued downward trend in government jobs. State deficits and federal inaction ensure these job losses will continue.
     
  • In addition to our need to rebuild the nation's physical infrastructure, there is an even more urgent need to rebuild its human infrastructure.  The drastic rise in inequality and joblessness has torn apart the social fabric, destroying countless individual lives, families, urban neighborhoods, and rural communities across our country. For more than a generation, the major "growth industry" in impoverished communities has been the illegal drug industry. Persistent, trans-generational poverty is directly responsible for the fact that the U.S. now leads the world in imprisoning its own people: 2.5 million, by the latest count, with more than 5 million more under some form of court supervision. (China, with its 2.5 billion people, runs a poor second.) Although most of the prison population is white, people of color are disproportionately represented, leading many analysts to declare that the mass incarceration of African-Americans and Latinos has created a new caste of unemployable "untouchables." Only a massive public works, community development, and job training program can end the destruction of American communities and stop the shameful criminalization of poverty.
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  • As public sector jobs are created, the country must also strengthen the public sector in ways that will require new democratic reforms to put publicly owned or financed enterprises under popular control. A long-term goal should be to democratize the economy so the people of the United States share in wealth and ownership as well as influence over the economy. See below Democratizing the Economy, Shifting Economic Power, Wealth and Ownership to all in the United States. There is a desperate need for a mass public works program, not only to create jobs, but also to meet the urgent needs of the country.
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  • The American Society of Civil Engineers estimated that failure to fix the nation's infrastructure has created serious damage so extensive that $2.2 trillion will be required by 2014 just to meet current demands. The ASCE gave the nation's infrastructure an overall grade of "D." Its report cited cracking levees, a quarter of the nation's existing bridges sagging, leaking pipes losing billions of gallons of drinking water per day, aging sewers releasing human waste into rivers and lakes, horrendous traffic congestion and air and water pollution. This is not "make work" but urgently needed work. A public works program modeled after the depression era Works Progress Administration would create 15 million jobs and build the infrastructure needed to create a sustainable economy.
     
  • Spending on the military is a drag on the economy, not just because it makes up 55% of federal discretionary spending, but because more jobs would be created by spending on education, infrastructure, green energy, or even on tax cuts for non-billionaires.  Converting a fraction of current military spending to other industries and tax cuts could produce 29 million new jobs, one for every unemployed or underemployed person in the United States, even after finding new employment for everyone displaced during the conversion.
     
  • Putting in place improved Medicare for all would provide a major stimulus for the U.S. economy not only by controlling the cost of health care and reducing deficits but by creating 2.6 million new jobs, and infusing $317 billion in new business and public revenues, with another $100 billion in wages into the U.S. economy.
     
  • Erasing student loan debt would have an immediate stimulating effect on the economy. As Mychal Smith writes: "[C]onsider the potential impact on the economy if all of a sudden 35 million people were able to add to their monthly budget anywhere between $400 and $1000 that they no longer needed to satisfy exorbitant student loan repayments. . . . Debt free degree holders would allow for more risk taking and innovation." As Robert Applebaum, an advocate of forgiving student loans writes: "the "educated poor' are not buying homes, not starting businesses or families, not inventing, investing or innovating and otherwise engaging in economically productive activities."  And, as Cryn Johannsen of All Education Matters points out, this would be a long term stimulus because college debts are multi-decade in length. Johannsen describes a "crisis that is affecting millions of educated Americans. We are indebted for life. Most of us will never be able to pay off our loans for college." Education is a critical building block for the economy and going forward the United States must develop a system of higher education that does not require students to go into debt just to receive an education. Rather than a loan-based system the U.S. needs a system based on grants, scholarships and public funding. 

These recommendations would create millions of jobs and get the economy moving again.  As the economy develops and expands, programs need to be put in place so that new wealth is shared more fairly; workers have greater control over their work through employee ownership and protections for collective bargaining; and so some of the profits created by public investment (i.e. by tax dollars) are shared among all U.S. taxpayers.  See below: Democratizing the Economy, Shifting Economic Power, Wealth and Ownership to all U.S. Citizens.

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http://nikkialexander.wordpress.com Nikki Alexander is a full-time writer and activist encouraging deep systemic reform in the United States to bring about social, political and economic justice for ALL members of our society. We are in this (more...)
 

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1.  Greenbacks: debt-free money, United State... by Scott Baker on Monday, Nov 21, 2011 at 8:24:01 PM
The proportion of their income that poorer people ... by David Chester on Wednesday, Nov 23, 2011 at 7:07:00 AM
Well, I agree with your second paragraph, but real... by Scott Baker on Wednesday, Nov 23, 2011 at 12:22:44 PM