Inspired by Michelle Bachmann, I’ve been thinking about what a 6-6-6 response to Herman Cain might look like. Being multiply disqualified from seeking election to the US Presidency, I decided to put in as much work as Cain and his team appear to have done, but no more. Hopefully, the magic of crowdsourcing will turn this into a comprehensive blueprint. So, here are the basic goals, and over the page, some of those devilish details.
The aim of the plan would be
(a) Reverse pro-rich and anti-worker policy changes of the past three decades to reduce, by 6 percentage points, the share of market income going to the top 1 per cent.
(b) Increase, by 6 percentage points of national income, the personal income tax revenue raised from the top 20 per cent of the income distribution
(c) Reallocate, or use more efficiently, current public expenditure equal to 6 per cent of national income
The aim would be to raise post-tax incomes for those in the bottom 80 per cent of the income distribution by around 20 per cent, while making around 10 per cent of national income available for new or better public expenditure.
For reference, US national income is currently around $13 trillion, so 1 per cent is $130 billion.
Part (a) is the hardest as far as attaching specific numbers is concerned, but the number of policy options is huge. First, there are the many anti-union laws and policies implemented beginning with Reagan (and before him, for that matter) – increasing the bargaining power of workers is clearly central to a more equitable distribution of market income. Second, there are a wide variety of corporate tax breaks that could be removed.. Third, but perhaps most important is the need for a smaller, and less highly rewarded financial sector. The Tobin tax would be my first step in this direction, but there are many more.
For part (b), the main component is obviously a more progressive income tax scale. But a substantial amount could be generated by ending the concessional treatment of capital gains, treating inheritances as income, and removing concessions that primarily benefit the top quintile. My back of the envelope estimate (to be corrected later) is that a 5 per cent increase in the marginal rate above 100k and a 10 per cent increase above 250k (relative to the Bush scales) would be sufficient
For part©, lower defense spending could yield savings of 2-3 per cent of national income while still leaving the US by far the world’s greatest military power. Improvements in health spending (for example, a redesign of Bush’s prescription health benefit) could yield 1-2 per cent. Scrapping the mortgage interest deduction (in combination with a once-off reset of current mortgage debts as part of the expenditure package) would save about 1 per cent. After that, there is the long list of pork-barrel items like the Farm Bill, bridges to nowhere and so on.
What to do with the 12 per cent of national income generated in parts (b) and©? I’ve assumed that a couple of percentage points would go to reduce state and local taxes paid by those in the bottom 80 per cent of households, leaving 10 per cent of national income for new or better programs. Although that seems like a huge amount, it’s not so much when you look at the big areas of need. Among them
- Poverty, which is at record levels relative to the poverty standard first set out in 1962, and updated only for inflation since then. I’d favor some form of guaranteed minimum income, but even a patchup of the existing safety net would be expensive
- Health care. The US government spends a lot in this area, but relatively ineffectively. A single-payer health insurance system is the obvious way to go, but even a public option would be a big improvement
- Education. I know more about post-secondary education, where the US used to be the world leader, but has ceased to be so, than about school education, so I’ll focus on the former. The biggest area of need is probably for an upgrading of standards in the community college sector. Success in that sector would imply more articulation into the four-year sector, which would therefore also need funding for more places and lower tuition charges. Then there is the huge problem of reforming the student loan system.
- Infrastructure. Another area where the US once led the world, and is now lagging badly in many respects.
- Debt and mortgages: Most of this plan is set out for the long term, but some action to deal with the burden of household debt, particularly mortgage debt is urgently needed. As I mentioned, this could be offset in the long run by removal of the mortgage interest deduction, which serves to inflate housing bubbles
- Overseas Development Aid: Most Americans falsely believe that the US spends much of its budget on foreign aid, and that it is still, as it was during the Marshall Plan era, the most generous nation in the world in this respect. Raising ODA from its current level, about 0.15 per cent of national income to 1 per cent would make the second of these claims true, and would be far more cost-effective in all respects than military spending
- Climate/Environment As I’ve argued before, fixing the problems of the global climate will cost much less than many people (on both sides of the debate) imagine, at least if we get started soon. Spending 1 per cent of national income now would save an awful lot in the future.
A few points about the plan. Obviously, it’s way outside the realms of political feasibility, but there’s nothing in it that’s remotely as drastic as the measures in Cain’s plan, or the proposals put forward by Paul Ryan. Many of the measures would simply reverse changes of the past few decades. If implemented in full, it would still leave the US as a relatively low-tax, low-spending government with a highly powerful military, and would only partly reverse recent growth in inequality.
In setting it out, I haven’t made any attempt to give a timescale, or to relate long-run proposals to the short-run need for fiscal and monetary stimulus (except as regards the mortgage debt proposal).
Obviously (I hope) this is just meant as a discussion starter. Pointers to omissions and errors will be accepted with the good grace usual in such cases, and suggested improvements with even more.
fn1. As will doubtless be pointed out, the CPI probably overstated inflation before the Boskin Commission changes of the 1990s, and there are various other problems with the numbers. Nevertheless, the important point is that this was designed as an absolute poverty standard, taking as its starting point the capacity to have an adequate “economy” diet by the standards of 1962.