CAN THE U.S. AFFORD PROGRESSIVE POLICIES?

Many in Congress and the Trump Administration, along with many in the media and many pundits, assert that the U.S. can’t afford the progressive policies being proposed by some Democrats in Congress and some of the Democratic presidential candidates.

This is a matter of priorities not affordability. For example, in 2017, Congress and the Trump Administration were able to afford $150 billion a year in tax cuts primarily for wealthy individuals and corporations. They also propose spending over $700 billion in 2020 on the military and foreign wars, a $34 billion increase from 2019. And the country has had no problem spending hundreds of billions of dollars building prisons and paying for a huge increase in the number of people in prison.

To fund her progressive policy proposals, Senator (and candidate for president) Elizabeth Warren has proposed a wealth tax on American citizens with over $50 million in wealth. It would generate about $275 billion per year to spend on progressive programs. (See my previous post for details and background on her proposed wealth tax.)

A recent report called the Poor People’s Moral Budget puts forth a vision for a set of progressive polices for the U.S. including ways to pay for them. [1] Their definition of “poor people” includes low-income households up to twice the federal poverty line or “one emergency away from being poor.” This includes 43.5% of the U.S. population or 140 million people. Many of these people are on the edge of being middle class and many of them were middle class before the loss of a good job, a health care emergency, or some other crisis pushed them over the edge and into economic hardship.

The Poor People’s Moral Budget identifies three categories of policy changes that could provide the federal government with the funds to pay for progressive policies:

• $886 billion a year from fairer taxes on wealthy individuals, businesses, and the financial industry (see detail below),
• $350 billion a year in cuts to military spending (see detail below), and
• Billions of dollars in savings from reducing incarceration and other sources.

The proposals for fairer taxes on wealthy individuals would bring in an estimated $628 billion per year:

• An annual wealth tax: $275 billion per year. (This is the same as Sen. Warren’s proposal. See my previous post for details.)
• Increase the income tax rate on income (e.g., dividends and interest) and gains from assets (e.g., stocks and bonds) so they are taxed at the same rate as income from work: $150 billion per year.
• Apply the capital gains tax to the increased value of assets prior to any transfer, such as through a gift or inheritance: $78 billion per year.
• Impose a 5.5% income tax surtax on income above $500,000 per person: $50 billion per year.
• Increase the inheritance tax by closing loopholes and applying it on inheritances of over $3.5 million per person (instead of the current $11 million per person): $40 billion per year.
• Increase the income tax rate on income over $10 million to 70% (which is what it was in the 1970s and before): $35 billion per year.

The proposals for fairer taxes on businesses would bring in an estimated $170 billion per year:

• Restore the corporate tax rate to 35% (instead of 21%) as it was before the 2017 tax cut law: $130 billion per year.
• Repeal the 2017 tax cut that provides individuals with a 20% deduction for income from un-incorporated businesses: $39 billion per year. (More than 80% of this tax cut goes to the richest 5% of individuals, such as hedge fund managers and partners in law firms.)
• Repeal tax breaks for fossil fuel companies: $1 billion per year.

The proposals for fairer taxes on the financial industry would bring in an estimated $88 billion per year:

• Place a small “sales” tax on financial transactions ($1 for every $1,000 of value): $78 billion per year. (This would discourage speculative, short-term trading, which is destabilizing to financial markets and has no productive value for the economy. See my earlier post for more details.)
• Place a small tax on big banks ($1.50 for every $1,000 of liabilities): $10 billion per year. (This would discourage risky investments and reduce the likelihood that banks fail and must be bailed out.)

The proposals for cutting military spending would save $350 billion per year and cut military spending roughly in half. The savings in military spending include:

• Close 480 of the 800 overseas military bases in 90 countries: $90 billion per year. (The U.S. would still have four times as many overseas bases as all other countries combined.)
• End the foreign wars the U.S. is currently fighting: $66 billion per year.
• Reduce purchases of weapons that are obsolete, ineffective, or unneeded: $58 billion per year.
• Eliminate nuclear weapons and delivery systems, and cancel planned upgrades: $43 billion per year. (This would be a huge step toward eliminating the threat of nuclear war and allow the U.S. to join the 70 countries that have signed the U.N. ban on nuclear weapons.)
• A variety of other cuts and improvements in efficiency: $93 billion per year.

These new revenues and spending cuts would allow the federal government to spend over $1,250 billion per year (roughly one-third of the current federal budget) on progressive policies that would increase opportunity and fairness in our society. The new progressive policies would create jobs, strengthen our economy, address climate change, rebuild infrastructure, invest in education and human capital, and provide other short-term and long-term benefits.

With progressive policies in place, the rising tide of a growing economy would once again lift up all people as it did in the 1950s, 1960s, and 1970s. The middle class would be revived and re-invigorated.

Future posts will discuss some of the specific progressive policies that could be implemented with the $1.25 trillion in annual funding made available by the changes in revenue and spending policies identified above.

[1]      Barnes, S.G., Koshgarian, L., & Siddique, A., June 2019, “Poor people’s moral budget: Everybody has the right to live,” Poor People’s Campaign, Institute for Policy Studies, and Kairos Center (https://www.poorpeoplescampaign.org/budget/)