The Road to a Fairer Society

Without policy recommendations, complaints about economic inequality are as empty as complaints about the weather. We can criticize market outcomes and their adverse impacts, as I did with my second and first articles respectively. However, without an agenda for our elected officials, this criticism will remain in the realm of discussion, instead of actually improving our nation. The three policies I will examine are an Earned Income Tax Credit expansion, a jobs guarantee, and a system of universal basic assets. Each proposal discusses policy and politics.

Earned Income Tax Credit (EITC)

Policy: This tax code feature offers low-and-middle-income working households, especially those with children, a sizable federal-tax reduction, in turn supplementing their wages. Since it is refundable, participants may even receive income without paying federal taxes, allowing the tax credit to double as a spending program. While programs like Medicaid and Temporary Assistance for Needy Families (TANF) receive plenty of attention, the EITC has quietly become our largest program of income redistribution and poverty alleviation.

In 2015, the EITC, along with the Child Tax Credit, lifted nearly 10 million Americans out of poverty and reduced the poverty of 20 million more. The EITC has improved educational outcomes and nutrition for children of low-income parents and increased labor participation, especially for single mothers. This helps to explain why states with more generous EITCs also have more economic mobility, a measurement of opportunity.

The EITC phases in as one earns more income, plateaus further down the income scale, and phases out for wealthy earners. In this way, EITC benefits encourage work. Yet the EITC is small, restricted mainly to working households with children. Even then the credit maxes out at about $6,000. An expanded and more generous EITC would extend benefits to more households and provide greater support to current participants.

Politics: The EITC is respected on both sides of the aisle–by Democrats as a redistributive tax credit and by Republicans for encouraging work and aligning more closely with a tax cut than a government spending program. Barack Obama and Paul Ryan proposed similar EITC expansions, particularly for childless adults who benefit least from the credit. A House bill proposed in September 2017 would roughly double EITC benefits for parents and raise them far higher for childless adults, expanding the credit’s power to enhance opportunity and alleviate poverty.

Jobs Guarantee (JG)

Policy: A JG would guarantee a job to every American seeking one. It would be publicly financed and locally administered, focusing especially on areas often neglected by the market–environmental preservation, community involvement, and care services. The resulting jobs, per several ambitious proposals, would pay $15 dollars an hour and include generous benefits. The program is predicted to hire 15 million workers and cost the federal government over $500 billion annually. By combining a right to work with socially valuable employment and redistribution, a JG can be a huge step for economic justice.  

With the fall of union power, decline of easy-to-automate middle-class jobs, and rising importance of the “fissured workplace” (temp-work, gig economy, subcontracting) it is vital to give workers new employment avenues and bargaining power. Not even “full employment” has generated wage growth, likely due to the low-quality jobs created over the past decade.

Unlike other job programs, a guarantee also addresses labor-market discrimination, including discrimination against people of color, ex-offenders, the long-term unemployed, and the elderly. A JG sets a floor for labor standards, creates a de-facto minimum wage, and includes health care, paid family leave, and mandated vacation time, among other benefits. A JG is a sweeping progressive reform for a fairer America, tackling multiple economic issues at once.

A JG’s benefits would also address the social issues created by long-term unemployment. Work is often more than just a source of income, but also one of dignity, self-worth, and social engagement. Accounting for joblessness-created social ills, such as mental health and urban decay, allows us to view unemployment as more than just a fall in GDP or a trade-off with inflation. Instead we can value employment as a vital source of human worth and community development, something ensured for all citizens. Rather than viewing unemployment as a natural market function, we can view it as a fundamental social failure in need of correction.

The program is expensive, but, according to a Levy Institute report, reductions in existing spending programs like the EITC and TANF from a JG would reduce the program’s price to $260-350 billion. The report also suggests a JG could even pay for itself when factoring in unemployment’s social costs like crime and health deterioration. A pilot program would also help reveal a JG’s administrative feasibility and its impact on the private sector, among the program’s main criticisms.

Politics: Currently, at least six senators expected to seek the 2020 Democratic presidential nomination support some form of job guarantee. A JG has received widespread media attention and versions have been proposed by Bernie Sanders and Cory Booker, whose bill would create a JG pilot program. If Democrats retake Congress and the White House in 2020, a federal jobs program, although not necessarily a JG, may materialize sooner than expected.

A JG is more feasible than some may think; variations have been implemented in India and Argentina. Even political compromise on federal jobs programs short of a JG would be welcome steps towards full and decent employment. This includes the Center of American Progress’ proposal for a jobs guarantee for workers without college degrees or a renewal of the TANF Emergency Fund, a public employment program with more than a quarter-million workers at its peak in 2010. A public works program, on par with the New Deal’s Work Progress Administration and the Civilian Conservation Corp, can help guarantee employment, freeing it from the private sector business cycle.

While a JG has attracted conservative and liberal critics, what is often overlooked is that states and local governments already have job programs known as “targeted tax incentives.” These specialized business tax breaks–Amazon’s HQ2 being a large example–are often zero-sum and fail to generate net employment. Instead they often create market inefficiencies and force subnational governments to rely more on regressive taxation–burdening low-income residents disproportionately–while cutting business taxes. These are more successful at providing giveaways to the wealthy than spurring job growth. A JG would allow lawmakers to focus less on this inefficient and ineffective “jobs program,” yielding a potent policy tool to create decent jobs for Americans seeking work, rather than having them race to the bottom for the benefit of the rich.

Already, 46% of Americans support a JG, even though this policy has only recently achieved widespread legislative consideration. While ambitious, it is a logical extension of America’s view of work as opportunity. As stated by economist Jared Bernstein: “If you believe that work should be a ladder out of poverty for able-bodied adults, then you must be willing to provide the working poor with enough jobs of requisite quality to back up that goal.”

Universal Basic Assets (UBA)

Policy: UBA would entitle every citizen to a fixed share of American assets. The federal government would create an investment fund similar to the Social Security Trust Fund (SSTF). However, unlike the SSTF, it would consist of a diverse portfolio of private-sector assets, including stocks, bonds, and real estate. All citizens would be entitled to a share of the socially owned index fund.

UBA can provide dividends to shareholders, acting as a type of universal basic income. It can also be a minimum inheritance, entitling citizens to an asset bundle to do with as they please once they reach a certain age. Not only would UBA address wealth and income inequality, but it could hedge against long-term social risks–including job automation and climate change–by linking the fund to intellectual property rights and carbon taxes respectively.

UBA would resemble Alaska’s Permanent Fund–which since 1982 has issued residents $1,000 to $2,000 annual dividends from its oil revenues–and the sovereign wealth funds of oil-rich nations like Norway and Kuwait, and resource-rich U.S. states like Texas and Wyoming.

This policy would make Americans more direct stakeholders in the economy, combating extreme concentration in financial wealth and allowing for wide distribution of economic gains. Financial wealth ownership would help Americans become asset-owners while avoiding the drawbacks of owning real estate–unfortunately the primary asset of most American households.

This century has been marked by volatile movements in median household wealth and increasing wealth inequality, particularly along racial lines. While the gains in wealth since the Great Recession have largely accrued to the top 1% of owners, the bottom half of owners have barely recovered from the decimation of their net worth by the recent housing crash. Currently, the top 1% own 40% of our nation’s wealth, surpassing the net worth of the bottom 90%. As income gains concentrate at the top, middle-class Americans face increasing debt. While news outlets report the latest stock market boom, half of Americans are entirely left out from these gains, with the benefits accruing primarily to the top 10%.

Despite positive economic indicators like low unemployment and relatively strong growth, financial insecurity among Americans remains high. Many must resort to selling personal possessions at pawn-shops or taking on high-interest payday loans during times of financial distress, times all too common for low-income Americans. A UBA would provide a buffer, entitling Americans to a portfolio of assets which they can save, use for collateral to obtain loans, or simply cash out when they need liquidity.

Politics: While a UBA has been floated among think tanks and policy makers for some time, in October Senator Cory Booker proposed a universal child inheritance or “baby bonds.” This would provide each child a financial nest-egg at birth–supplemented with government payments based on family income–which would accumulate until the account holder gains access to their “inherited” wealth at age 18.

For now the plan risks remaining a liberal fringe idea. But, as stated by economist James Buchanan: “When I look to the future, I’m a pessimist. But when I look the past, I’m an optimist.” A UBA would follow in the footsteps of previous policies focused on social ownership. This can be traced as far back as Thomas Paine’s 1797 pamphlet “Agrarian Justice,” which proposed a basic inheritance financed by a land tax. The 19th century witnessed the Harrison Land Act of 1800 and the Homestead Act of 1865, which democratized land holdings by allowing average Americans to purchase land directly from the federal government, in sharp contrast to old Europe’s landed elite.

The 20th century was the era of homeownership, beginning with the Federal Housing Administration (FHA) of 1934. The FHA helped to secure mortgage financing for working-and-middle-class families, allowing them to leave their cramped urban dwellings to become suburban homeowners. The FHA encouraged the now-common practices of long-term mortgages with fixed interest rates, low down payments, and amortization (reducing principal debt through regularly scheduled payments), playing a major role in America’s suburbanization. However this policy of mortgage expansion excluded people of color, who even today face lower returns from real estate due to housing discrimination, among the many pitfalls of homeownership.

The 21st century could be the century of finance if all Americans become stakeholders in their nation’s economy, encouraging widespread financial literacy and opportunity through wealth accumulation for the least advantaged. As the stock market breaks new records, these developments shouldn’t be restricted to a select few, but should benefit society as a whole.

These three policies, focusing on income, employment, and ownership, can bring the United States forward to outcomes determined by merit and choices rather than birth lottery and social circumstances, which would serve the common good rather than the fortunate few. For decades, the U.S. has lagged behind other developed nations in advancing economic justice, despite its former place as leader from the early to mid 20th century. These and similar programs can allow us to lead the world through example once more, proving our commitment to opportunity and shared prosperity.

 

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