Economy

September 3, 2010 5:09 PM

How to End the Great Recession. Robert Reich's prescription for the economy.
posted by semmi (53 comments total)

Calling mutant... mutant, can you come in please...
posted by fatbird at 5:34 PM on September 3, 2010

Amen. (to the article)
posted by jb at 5:43 PM on September 3, 2010

Note:
This piece has been updated to reflect today's news.

Oh man, now what?
posted by StickyCarpet at 5:44 PM on September 3, 2010

He's got wonderful ideas. And the right wing, aided by their well-oiled corporate media machine, will shit all over anyone who tries to implement any part of it.
posted by deadmessenger at 5:50 PM on September 3, 2010 [4 favorites]

Robert Reich is fantastic. I wish he was still in government. I can settle for academia though, I guess.
posted by MarvinTheCat at 5:58 PM on September 3, 2010

Summary:

• Health-care reform
• Extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon.
• Exempting the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000.
• Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions.
• Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.
• Workers who lose their jobs and have to settle for positions that pay less could qualify for “earnings insurance” that would pay half the salary difference for two years

Personal opinion: sigh. The first half reads like every other summary of the current situation that's out there (and suspiciously similar to Krugman's writings). The second half… well, it's not even half. It's more like a couple of paragraphs tacked on the end. A few OK ideas, a few ludicrous ones, but mostly punitive disincentives to all the wrong people. For instance, why should public universities be paid for by the graduates? Are public elementary and high schools paid for by high school seniors? Why no mention of reinstating the estate tax to 1976 levels (or higher)? Why a carbon tax but no federal subsidies for environmentally-friendly construction? Why should workers who "settle" (love that word) for positions that pay less get half their old salary? So, if Joe CEO gets fired because of his incompetence he can go claiming half his old salary? How's that supposed to fix things? And "health reform" isn't health reform without a public option… full stop. No public option and you've accomplished nothing but burden the middle class and give a handout to the insurance companies. Insurance companies have no incentive to compete when their competition are other jackals insurance companies.

It's just pathetic what's being bandied about as solutions. Is this really all you've got, American liberals? Seriously? Because it's fucking WEAK.
posted by Civil_Disobedient at 5:58 PM on September 3, 2010 [11 favorites]

When do the rest of us get to shit all over the right wing and have it stick?
posted by Katjusa Roquette at 5:58 PM on September 3, 2010 [1 favorite]

"...follow the yellow brick road..."
posted by clavdivs at 6:09 PM on September 3, 2010

When do the rest of us get to shit all over the right wing and have it stick?

When a majority of American workers vote Socialist. So, never.
posted by TrialByMedia at 6:13 PM on September 3, 2010 [3 favorites]

I'm beginning to think Malor is Reich's metafilter account. Which is meant as praise for both of them.
posted by mek at 6:25 PM on September 3, 2010

The good guys lost; burn it all down and reset.
posted by Meatbomb at 6:27 PM on September 3, 2010 [1 favorite]

Civil_Disobedient: "For instance, why should public universities be paid for by the graduates?"

I think the idea is to stop charging outrageous rates to students for degrees that open no doors in the workplace, and maybe form some kind of terrible, stupid limit on the number of doctors, engineers, lawyers and scientists available in the world. It'd similar to unionizing the educated, without hassle of getting them to agree to it.

It's also kill of a lot of the stupid two year CC programs we run that have no workplace to arrive at. One of whom I've met on Mefi asking what to do with their now not so valuable degree.
posted by pwnguin at 6:35 PM on September 3, 2010 [1 favorite]

Robert Reich is the smartest marginalized figure in American government. Under any honestly liberal President, Reich would have been Secretary of the Treasury, not Secretary of Labor.

Still, Civil_Disobedient's got a lot of fair points here: this is fairly restrained for Reich's usual territory. One wonders if the Times muzzled him just a little.

On the other hand, Reich did do this pretty fucking awesome thing.
posted by l33tpolicywonk at 6:59 PM on September 3, 2010 [6 favorites]

One of the things Reich misses is the way capital gains and dividends are taxed at a lower rate than payroll...if you're rich, that is. If you're an average worker, they're actually taxed at a higher rate than your pay.

All income needs to be taxed the same. If you're in a high tax bracket, you should pay that bracket's tax on all your income, not just on the part that you did actual work for. And if you are in a low bracket, you shouldn't be penalized with a higher tax on money you got through investment, especially since investment is so much more of a burden on people with lower discretionary income.

Reich suggests reinstating payroll taxes at $250K. I'd suggest simply removing the cap, and putting in a significantly large deduction (he suggests $20K, I'd suggest making it equal to the median income), and make FICA an income tax rather than a payroll tax, which would prevent concealing wages by redefining them as dividends or capital gains.
posted by Jimmy Havok at 7:07 PM on September 3, 2010 [5 favorites]

"For instance, why should public universities be paid for by the graduates?"

By making the tuition payment owed a percentage of future income, it rather brilliantly makes you pay in proportion to your benefit. Regardless, it's easy to caculate that this "education tax" would only cover a fraction of total costs, as education would continue to be heavily subsidized (and rightfully so!). Most importantly it would move tuition costs from up-front (where it is a barrier to entry) to pay-later. Unfortunately the fatal flaw in this plan is that the vast majority of high school "graduates" are so undereducated due to the near-total failure of public education that even free university is inaccessible to them. We need to fix the schools we have, and we need to provide new continuing-education services to those who have been left behind so they have an opportunity to enter the job market. This will also require stricter regulation on employment practices (remember that EFCA thing?).

Obviously we missed the boat on single payer healthcare, so setting that aside I think the single greatest change the USA could make would be to implement a living wage: a minimum wage tied to the cost of living, which would ensure that working full-time will bring you above the poverty line. $15/hr would be a good start. Once we have that in place, we need to start in on some massive infrastructure projects that are not roads. Solar power and passenger rail would be some starting points.
posted by mek at 7:16 PM on September 3, 2010 [1 favorite]

I thought that Reich was spot-on with his diagnosis, but I felt a disconnect with his proposed solutions. If the middle class is being hammered by jobs being sent to low-wage countries which aren't competing fairly, then why should we allow free trade with those countries? If massive corporations are squeezing their workers and have stopped innovating, but crowd out the competition, then use anti-trust laws to break them up.

Reich's solutions will not be palatable because they involve a direct pipeline of redistribution from the rich to the poor and everyone hates that. His solutions also don't address what to do with people whose skills max out at a low level. Simply giving people money to exist does not work. People need to earn.

Instead of doing it Reich's way, why not change the economy so that the money won't pool so quickly among a small number of people? This country seemed to do pretty well when we had things like regional department stores rather than a handful of national superstores. Without conditions that favor companies Wal-Mart, the Walton family wouldn't be skimming off so much of this country's wealth and more people would be employed. It wouldn't be as efficient, but efficiency is not good if it means more unemployed.
posted by RalphSlate at 7:18 PM on September 3, 2010 [1 favorite]

I'd suggest simply removing the cap, and putting in a significantly large deduction (he suggests $20K, I'd suggest making it equal to the median income), and make FICA an income tax rather than a payroll tax, which would prevent concealing wages by redefining them as dividends or capital gains.

Too hard.

Capital Gain Income == Income. Done. Finished, then tax it as such. I actually think it should be taxed separately, at these base rates.

Sell before 1 year: 90%
Sell between 1-2 years: 60%
Sell 2-3 years: 50%
Sell 3-4 years: 35%
Sell 4-5 years: 20%
Sell 5-10 years: 15%
Sell 10-20 years: 10%
Sell after 20 years: 5%, or 0% if income under median.

These rates are divided by half after 2 year if your taxable income is under the median.

This will never happen, because it would destroy day trading, destroy hedge funds, destroy housing flippers, indeed, it would destroy the very market forces that drive the quarterly goals of most companies. It would put the long term ahead of the short term.

Which, for all of humanity, would be a *huge* win. But it'll never happen.
posted by eriko at 7:24 PM on September 3, 2010 [14 favorites]

Re: Reich's finding that the wealthiest 1% are hanging onto more of the $$$

Um, no shit. I wasn't in Clinton's administration, but I figured this out too.

So, what to do about it? The 1% have become adept at having their GOP lapdogs fighting everyone over ideological tablescraps while they continue to eat filet. No-one has the balls to tax the rich at realistic rates, or set a realistic min. wage.

Despite two layoffs, we're still getting by, but there's a pitchfork close to the door, and some dry pine torches soaking in coal oil...
posted by Artful Codger at 7:24 PM on September 3, 2010 [1 favorite]

For instance, why should public universities be paid for by the graduates? Are public elementary and high schools paid for by high school seniors?

Uh, eventually yes. Once they start working and paying taxes. It wouldn't make sense to make high school seniors to pay for elementary and middle schools, since they don't have jobs. It does make sense for them to pay after they start working, which is exactly what happens (modulo moving around the country, but they're still going to pay for some schools somewhere)

Why a carbon tax but no federal subsidies for environmentally-friendly construction?

A carbon tax would be equivalent to federal subsidies for greenhouse friendly energy production (and retrofitting) because the price of not doing so would go up.

Your post basically sounds like "I want all this stuff, but it should all be FREE and no one should have to pay for it!" Not very realistic.

How's that supposed to fix things? And "health reform" isn't health reform without a public option… full stop.

Reich was a major proponent of the public option, so I don't know what you're bitching about here.

I'm beginning to think Malor is Reich's metafilter account. Which is meant as praise for both of them.

What? Have you actually read anything those two have written? Their ideologies are totally different. Malor is more of a libertarian type while Reich is a 'big spending' liberal. Also, Malor was claiming that we would have massive inflation, whereas the liberal economists have been saying the opposite: that we'd have deflation and high unemployment (which is exactly what we got)

Sell before 1 year: 90%
Sell between 1-2 years: 60%
Sell 2-3 years: 50%

So, if you invest in a company and then it turns out the CEO was embezzling funds or some other scandal, you should be required to either go down with the ship or pay a huge tax?

Having low capital gains tax makes sense, they just need to close the loophole that lets CEOs and venture capitalists skip out on paying taxes.
posted by delmoi at 7:36 PM on September 3, 2010 [2 favorites]

I definitely mixed up Malor and Mutant there, and then shrinked off to some metatalk threads which made me even more confused.
posted by mek at 7:53 PM on September 3, 2010

Is this when I link to a rousing version of "The Internationale" with the words: I got your fuckin' solution right here? Yes. It is, once again, that time.
posted by ford and the prefects at 7:53 PM on September 3, 2010 [3 favorites]

The difference between 1928 and now is that the currency floats. In 1928, when the richest people were earning vastly higher wages, it was at the expense of something: each dollar was gold. It was a zero sum game.

Today, it doesn't matter. You guys could all have a trillion dollars in the bank, and milk would still be $3 a gallon. Moreso, the Fed actively attempts to manage the money supply so that there is money available.

Here is why capital gains being taxed at the same rate as regular income isn't good: we WANT people to invest money. When people invest, the economy grows. The money they made goes back into the system to pay someone else (eventually). We don't want a system that discourages people from investing their money.

Here is what will fix the economy: dump the income tax, for everyone, in exchange for a VAT, or a national sales tax. Someone figured it out, and if we did the transition right, prices wouldn't move at all, and nobody would have to pay income tax any more.

Another thing: eliminate corporate income taxes. The proportion of revenue it generates is not worth the effort. The taxes filter down to the shareholders. If a company makes a profit, it puts out a dividend which is taxed. If it keeps the money, it will eventually get taxed when the stockholders sell their shares on the now larger corporation.

Third thing: don't buy things from corporations you don't like.

Fourth thing: Free college loans.

Fifth thing: Single payer health care.

Sixth thing: Improve education. NCLB Mark II: Teach to the Test, dammit! Make a good test for each grade level, and demand students be taught to pass that test. If it's a good test, they will learn. Some things will fall through the cracks, but important things like math, reading comprehension and problem solving won't. Teach everyone some skills. Mandatory wood shop, metal shop, electronics shop, computer shop, cooking shop, etc. We are quickly becoming a nation of helpless morons, and it needs to stop.

Oh, also, start back up the CCC. Anyone who wants to can go out and earn some money cleaning shit up and improving our natural and built infrastructure.

Make unemployment insurance cap out at the state's minimum wage. (I don't think it even meets that in some cases.) If a worker was full time, they get 40 * minimum wage each week. If employees want better coverage, we should have the option of paying more into the pool.
posted by gjc at 7:59 PM on September 3, 2010 [1 favorite]

Civil_Disobedient: "For instance, why should public universities be paid for by the graduates?"

Because nationally, just over half of 4-year college students manage to graduate in six years, and only 27% of associate-track students graduate in three years.

IANAE, but linking college income to future earnings ought to reinvigorate higher ed's focus on producing employable graduates with marketable skills.
posted by johnwilcox at 8:04 PM on September 3, 2010

So, if you invest in a company and then it turns out the CEO was embezzling funds or some other scandal, you should be required to either go down with the ship or pay a huge tax?

...why the hell not?

A whole lot of us are taking a bath and we weren't even in the market.
posted by Artful Codger at 8:07 PM on September 3, 2010

By making the tuition payment owed a percentage of future income, it rather brilliantly makes you pay in proportion to your benefit.

Yeah, see that's not progressive. There are a million-and-a-half reasons why someone with a college degree will never pay back "their share." What happens to the quality of American public university education when the people graduating can't get jobs because new businesses aren't getting financed and existing work has been moved offshore by greedy fuckers that, more than likely, will never even see the inside of a public school?

Get it right: I'm not saying public universities shouldn't be free. What I am saying is that expecting college graduates to foot the bill is outrageously stupid. Shit, just take a gander over to AskMe and search for all the "I'm graduating and I'm fucked. What should I do?" posts.

It does make sense for them to pay after they start working, which is exactly what happens

Public schools are paid for primarily with property taxes. From property owners. Not from un– or under-employed college graduates paying rent.

A carbon tax would be equivalent to federal subsidies for greenhouse friendly energy production (and retrofitting) because the price of not doing so would go up.

No, that's completely wrong. A carbon tax is punitive, like an extra line-item on a brand-new Ford Outlandish, or additional costs for coal-energy producers (that end up getting passed along to the consumers). A subsidy, on the other hand, is a reward for producing something. Joe Middle-Class isn't going to be buying the new Ford Outlandish, so that Carbon Tax is accomplishing exactly jack shit. But tell Joe Middle-Class that he can cover his roof with solar panels for the same price as a flatscreen TV, and you'll start to see real movement. Plus, you're helping everyone down the line: Joe Middle Class gets a lower energy bill. Bill Contractor gets a nice check for installation. Susan SolarPanelProducer gets so much businesses she has to hire Nancy Newgal. Etc., etc., etc.

Your post basically sounds like "I want all this stuff, but it should all be FREE and no one should have to pay for it!" Not very realistic.

Wrong. I thought I was pretty clear on who's paying for this: the people that can afford it (a.k.a., the filthy rich).

they just need to close the loophole that lets CEOs and venture capitalists skip out on paying taxes.

That, too.

linking college income to future earnings ought to reinvigorate higher ed's focus on producing employable graduates with marketable skills.

This is horseshit. Colleges are turning out craploads of over-educated people with plenty of marketable skills. But the flow of investment capital has completely dried up. There are a thousand Bill Gates out there right now with huge ideas that could change the world, if only they could get some cash to start it up. But unless your "big" idea involves trading what little is left of the Middle Class for some abject poverty or moving jobs to cheaper labor markets or squeezing blood from a stone, you'll never see funding.
posted by Civil_Disobedient at 8:52 PM on September 3, 2010 [1 favorite]

Here is why capital gains being taxed at the same rate as regular income isn't good: we WANT people to invest money.

If I make capital gains, they get taxed at a HIGHER rate than my pay. Hows that for an incentive?

Taxing capital gains at a different rate than other income simply encourages pay packages that redefine pay as capital gains. How is that beneficial?

As long as people are making money off of their investments, they will make them. Claiming that people won't invest unless they get special perks is just plain stupid.
posted by Jimmy Havok at 8:53 PM on September 3, 2010 [3 favorites]

One standard reply is that you can't tax the rich because they can just move to a different country, and any increase will affect the richest people the least because they're more mobile than others. To what extent is this true, if at all? Is there a point where taxes would be high enough to make enough people leave that net gains would be erased? How is this going to play out in the next 30-40 years, are there going to be international agreements to match tax rates to avoid this issue? (Assuming governments would even be interested in that.)
posted by rainy at 8:57 PM on September 3, 2010

Capital Gain Income == Income.

I like this idea, but I'd also like to see a "speculation" surtax, something like 90%, on assets held less than a few days or so. It'll take the high-frequency day-trader parasites right out of the market, and bring Wall Street back to what it was originally intended to be: a vehicle for investment, not a casino.
posted by deadmessenger at 9:02 PM on September 3, 2010 [4 favorites]

Public schools are paid for primarily with property taxes. From property owners. Not from un– or under-employed college graduates paying rent.

The property taxes the landlords ostensibly pay are factored into the rent. Tenants are paying those taxes, via a passthrough.
posted by deadmessenger at 9:05 PM on September 3, 2010 [3 favorites]

I love it how for academics and educators more, better paid education will always solve all of humanity's problems.
posted by 3mendo at 9:05 PM on September 3, 2010 [2 favorites]

Here is why capital gains being taxed at the same rate as regular income isn't good: we WANT people to invest money.

...

Here is what will fix the economy: dump the income tax, for everyone, in exchange for a VAT, or a national sales tax. Someone figured it out, and if we did the transition right, prices wouldn't move at all, and nobody would have to pay income tax any more.

Rich people love this nonsense. Since poor people spend far more of their money as a proportion of income, it means taxes would mostly be paid by poor people. And if the rich want to buy expensive luxuries, all they have to do is jet off to Italy and buy them there.

Investment won't do anyone any good if consumers don't spend. What's the point of investing in a low-margin industry if no one can afford to buy my stuff due to sales tax?

VAT is a little different, but in my view worse: It takes a bit out of every economic transition. So whenever you manufacture something, you have to pay a tax! It's a straight up tax on economic activity. Obviously any company you invest in that does well is going to have to pay a VAT so I'm not exactly clear why it's better for investors then a capital gains tax.

---

But the real reason conservatives love the VAT/Sales tax is that it doesn't tax rich people who make a lot of money but don't spend much (at least not here in the US).

It's also going to totally screw (middle class) people who worked and saved all their lives. They paid income tax and now they'll have to pay sales tax/VAT! Awesome.

I agree we should get rid of income tax. What we should really tax is hoarded wealth. Rather then tax productive activity. Tax money that's not invested. That way everyone would either invest or spend their money, which creates economic activity. But that screws the wealthy, so of course they'd think it's a horrible idea.

---

What happens to the quality of American public university education when the people graduating can't get jobs because new businesses aren't getting financed and existing work has been moved offshore by greedy fuckers that, more than likely, will never even see the inside of a public school? -- Civil_Disobedient

We only have a 9.2% unemployment rate. It sucks but most people have jobs. *rolls eyes*

Public schools are paid for primarily with property taxes. From property owners. Not from un– or under-employed college graduates paying rent. -- Civil_Disobedient

Again, most people have jobs. And most college graduates own homes. Do you seriously believe most college graduates are unemployed renters now? If they're unemployed how are they paying rent?

And anyway, you do realize that landlords have to pay property taxes, right? Where do you think they get the money for that? It's from the rent that those college graduates are paying. Duh.

Wrong. I thought I was pretty clear on who's paying for this: the people that can afford it (a.k.a., the filthy rich). -- Civil_Disobedient

Go back and read your comment. You didn't specify any revenue sources at all. I'm all for taxing the rich. But they don't have an unlimited supply of money.
posted by delmoi at 9:38 PM on September 3, 2010

Until we can manage to wrench control of Congress and a number of other things away from the people with all the money, all this talk is academic.

It looks pretty clear that the 1% have decided that it's all right to demolish the US economy as long as they've got theirs. With globalization, what does it matter if the US is turned into a third world economy? There are new emerging markets that will become the new climbing-out-of-the-gutter economies.

Or so they probably think.

Apart from that cynicism... i think a really good infrastructure project would be rehabbing all the utterly decrepit infrastructure we already have. Any sewer system older than 30 years, for instance, as well as fresh water supply lines.
posted by zoogleplex at 9:45 PM on September 3, 2010

I love it how for academics and educators more, better paid education will always solve all of humanity's problems.

This is the strangest attack I've ever heard. I'd love to hear the argument for LESS education.

*waits*
posted by absalom at 11:00 PM on September 3, 2010 [5 favorites]

NCLB Mark II: Teach to the Test, dammit! Make a good test for each grade level, and demand students be taught to pass that test. If it's a good test, they will learn.

So the bright but defiant boy in my first-grade class whose father left the family three separate times, once for years... all he needed in order learn to read was a better test! If only I had known! All the in-class breakdowns about how his father hated him and lied to him were just because he was taking the wrong test!

... so where can I download this test...?
posted by Huck500 at 11:02 PM on September 3, 2010 [1 favorite]

One of the things Reich misses is the way capital gains and dividends are taxed at a lower rate than payroll...if you're rich, that is. If you're an average worker, they're actually taxed at a higher rate than your pay.

How so? Since at least 2003, the long term capital gains rate (and qualified dividend rates) for people in the bottom bracket has been 5% or 0%. I think it's going to 10% when the bottom bracket goes to 15% for 2011.
posted by planet at 11:08 PM on September 3, 2010

I'd love to hear the argument for LESS education.

Not necessarily less education, per se, but it's become the case over the years that getting hired practically every job that pays significantly over minimum wage requires a bachelor's degree, regardless of whether that degree is actually from an institution of any repute or even required to do the job. This approach by employers has slowly transformed the bachelor's degree into a glorified high-school diploma.

A lot of people would be better served by vocational training (which, in my opinion, is unfairly looked down upon in the U.S.) that would teach them to do actual jobs, and show that they actually learned something relevant to their intended career path, rather than a piece of paper, that, depending on where it came from, isn't worth but a fraction of the debt its owner is now saddled with.
posted by one more dead town's last parade at 11:17 PM on September 3, 2010 [5 favorites]

getting hired for practically every job
posted by one more dead town's last parade at 11:19 PM on September 3, 2010

The article ignores or glosses over all the deeper structural problems. There's no discussion of the fact that an economy literally built on debt inevitably requires these destructive phases from time to time. Nothing even on the particular set of market mechanisms that unravelled around generating, selling and hiding bad debt.

Nothing on oil depletion making it cost $75 a barrel just on the cusp of growth again, rather than $20 or $40. One tiny suggestion of a carbon tax, no recognition of the need to put an end to the culture of spectacular consumerism, a culture Reich does discuss.

The three changes to American working patterns he sets out are right, but why write..

American families kept spending as if their incomes were keeping pace with overall economic growth

.. and then try to work out how to restart the spree? Didn't we just see what happened?

This just reads like more whimpering from the ever-so-slightly left of centre 90s crowd, who appear to have no objective more sensible than "let's get America shopping again".

I love free education, and I'll fight for it. Same with trade union rights. Yes, a fairer and more progressive taxation system. They're good for the economy too, if you see working people as part of the economy, but they won't get us out of the substantial and complex problems we're in right now.
posted by imperium at 11:41 PM on September 3, 2010

The article ignores or glosses over all the deeper structural problems. There's no discussion of the fact that an economy literally built on debt inevitably requires these destructive phases from time to time.

That's because it's nonsense. Why would Reich spend time explaining some random crackpot theories in his articles?

When you deposit money in a bank, you're lending the bank money. It's a debt! An economy without debt wouldn't even make sense. Every dollar in savings creates a dollar of debt. Only money that's held as cash isn't a debt. Additionally you have debts that are due to interest, rather then principal.

But anyway. The economy is actually build on labor. Money just a signifier of wealth, not the actual stuff. It's fairly obvious that labor doesn't actually go away in an economic crunch, it just creates uncertainty that causes people not to invest (at least in this case)
posted by delmoi at 12:01 AM on September 4, 2010

I love it how for academics and educators more, better paid education will always solve all of humanity's problems.

More and more effective education will solve all of humanity's problems, as long as all of humanity gets access to it.
posted by stavrosthewonderchicken at 5:01 AM on September 4, 2010

Two points:

1) "The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving."

America is entering a time when it must start balancing needs rather than addressing economic problems through growth. The Europeans have traded individual gain for social stability and America will have to do that too. Reich is exactly right in the trade-off and the US can either become a Germany or an Argentina.

2) Education is all well and fine however until we start placing people into roles that the economy needs, much of our education money is being wasted, economically. I'm all in favour of a huge number of history PhDs however perhaps it would be good for these individuals to do teaching degrees first, build a career around best-practice in education and then pursue their own interests later in life.

Overall, we're looking at a new America based less around 'I want to...' and more around 'We need to...'.
posted by nickrussell at 6:08 AM on September 4, 2010

I agree we should get rid of income tax. What we should really tax is hoarded wealth. Rather then tax productive activity. Tax money that's not invested. That way everyone would either invest or spend their money, which creates economic activity. But that screws the wealthy, so of course they'd think it's a horrible idea.

Well, in a way, this is how it already works. Interest income from bond holdings, money market accounts, savings accounts and other vehicles that are basically money lending conduits are taxed as ordinary income; dividends (in most cases) and long-term capital gains are taxed at the preferential rates already mentioned.

Someone else mentioned upthread taxing investments at really absurd rates based on how long they're held. In a way, this is what is already done, albeit at rates more in line with the current structure. I mentioned long-term capital gains — this is a preferential rate given for assets that were held for more than a year. Short-term capital gains are given the ordinary income rate, which is higher in nearly every case.
posted by indubitable at 6:14 AM on September 4, 2010

Argue about the specifics all you want, but this is the thing to remember:

THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.

We need to tell our friends in the Tea Party about this idea.
posted by Mister_A at 6:44 AM on September 4, 2010

"No, [Obama and Hillary Clinton] blame other classes for making too much money or attach the pejorative "big" to companies full of hard working people, hurting the very people they pretend to care so much about." -- a friend from Junior High commenting on a Facebook post of mine. (He named one of his daughters "Reagan")

This person is not, as far as I can tell, wealthy, nor does he own or work high in the ranks of any particular large corporation. He describes himself as "Conservative/Republican/Libertarian".

My point is, the plutocrats have a wonderful army of footsoldiers they've trained to fight and die to preserve their power, even though it not only doesn't benefit the soldiers themselves; it actively harms them. We recently saw many of unemployed folks with no insurance fight tooth and nail against something that would have helped them should they get sick or injured. They're currently fighting against a bill to help the same small businesses they opposed the health care bill to protect.

I don't think they have much to worry about. Their side organizes the Tea Party, our side organizes zombie walks.
posted by Legomancer at 6:49 AM on September 4, 2010 [3 favorites]

So, if you invest in a company and then it turns out the CEO was embezzling funds or some other scandal, you should be required to either go down with the ship or pay a huge tax?

Yes. It's an investment, not a deposit. Sometimes, investments go bad.

You buy stock in a company, you are a partial owner of the company, and you should really care about who is running the company in your stead.

Besides, lots of companies have had things like this happen and come out just fine in the 10-20 year time scale. Maybe if you didn't panic and SELL SELL SELL you could nail the CEO, hire a replacement to build the company, and profit off your long term investment anyway.

The *WHOLE POINT* of this is to stop the hyper-reactivity problem, and make the operators of the company align themselves to long term, not short term, interests. Being able to bail because the CEO stole $10M to go on a pig-fucking holiday is exactly one of the things I want to prevent.

And, of course, if you invest in a company with an incompetent CEO, who's fault is that?

Yours.

It's called Due Diligence.
posted by eriko at 7:23 AM on September 4, 2010

The article ignores or glosses over all the deeper structural problems. There's no discussion of the fact that an economy literally built on debt inevitably requires these destructive phases from time to time. Nothing even on the particular set of market mechanisms that unravelled around generating, selling and hiding bad debt.

Ding-ding-ding. This is fundamental to understanding the present economic malaise and the failure of the current policy descriptions to fix it. The current destructive phase we are (I would argue just beginning) in is required to clear the bad investments made over the past 30 years. You can boil the present situation's cause down to a few fundamental points:

1. Excessive deregulation
2. Insufficient oversight and prosecution of fraud
3. Easy credit and low interest rates

Combine cheap money with deregulation and the ability to spend "other peoples' money" without much oversight and you have a recipe for complete disaster...similar to what we had in 1929-1930. The fact of the matter is that in the last 10 years we have accumulated so much debt in such poor investment vehicles (real estate being the final straw) that the entire system must be purged.

The current actions on the part of the Obama Administration are simply abhorrent and are the equivalent of kicking the can down the road. Economists view the world in relatively stark terms, where the name of the game is "growth". Whatever promotes growth is good, whatever detracts from growth is bad. We have an economy that has a massive cancerous tumor known as debt, and until that debt is cleared there will be little growth. End of story.

Obama's policies are the same policies that every economist recommends during every post-war recession: lower interest rates, goose the system, spend some money to promote infrastructure and put people to work. Combine this with policies that have rewarded the financial institutions and failed to force the bad debts out of the system and the cancer is still spreading. If you look at the REAL economy you see some stark dichotomies borne out by recent sales reports: luxury goods are selling, basic consumer staples are restrained. Spending at Nordstrom, Neiman Marcus and Tiffany is up, while at Target, Wal Mart and your local grocery store they are flat to down. What does this (admittedly anecdotal) evidence show us? That we've blown another bubble, the stock market, and the wealth effect is back in full bloom. As soon as equities take another dive, that will be the final nail in the final bubble.

You cannot cure a debt crisis by spending more, just as you don't cure an alcoholic with another drink. Unfortunately, the current administration policies are not only giving Wall Street another drink, but a side of cocaine laced with some LSD to make the financial world look rosy 'n shit. You want to fix the system, purge the debts, punish the malinvestment and jail the fraudsters who perpetrated this fraud. I think Americans are waking up to the fact that we're entering a new economic reality and reacting accordingly. The ones who are not realizing this are our political class and academic class.
posted by tgrundke at 9:12 AM on September 4, 2010

We only have a 9.2% unemployment rate. It sucks but most people have jobs. *rolls eyes*

Crackhead, get real. I can't believe someone with your intelligence would even dare quote such an egregious, outrageous, commonly-recognized lie.

Go back and read your comment. You didn't specify any revenue sources at all.

You're right—sorry about that. I assumed I did with the point about estate tax reinstatement but I could have been a lot clearer. And it's not just the fabulously wealthy, either. Corporations have been playing this no-tax-paying shell game for decades. But again, these are well-trodden paths. Everyone knows this, but nobody is doing anything about it.

The property taxes the landlords ostensibly pay are factored into the rent. Tenants are paying those taxes, via a passthrough.

A passthrough? That's really interesting. Can you tell me more about this passthrough? Because I'm fairly sure the property owners are paying the property taxes. Now, you can guess that they'll pass this along to the renters, but now you're venturing into La-La Assumption land. The property taxes are paid regardless of whether or not the unit is occupied. Unless you know of some magical renter city with 100% occupancy?
posted by Civil_Disobedient at 9:19 AM on September 4, 2010

Public schools are paid for primarily with property taxes. From property owners. Not from un– or under-employed college graduates paying rent. I don't think this is correct. So you're saying that the owners pay the property tax out of their pocket without passing the cost on to the renters? I don't think that happens anywhere.
posted by Daddy-O at 10:09 AM on September 4, 2010

you can guess that they'll pass this along to the renters, but now you're venturing into La-La Assumption land. The property taxes are paid regardless of whether or not the unit is occupied. Unless you know of some magical renter city with 100% occupancy?

I think it's weird that the "taxes are always passed along" idea often co-exists with the "competitive markets result in cheaper goods/services" idea.

Sure, in a non-competitive market, of course, the supplier is a price-setter and and the consumer is a price-taker. But we live in a competitive market economy, right? The first person to raise the rent to protect their profits is going to be at a disadvantage to anyone who hasn't raised their rent, so there's motivation to find some other way to be more efficient and rather than raising rents -- if all this free market stuff works, right?
posted by namespan at 10:35 AM on September 4, 2010 [1 favorite]

Civil_Disobedient: "Public schools are paid for primarily with property taxes. From property owners. Not from un– or under-employed college graduates paying rent."

Depends on the school. Community colleges, yes. Tuition makes up only 15 percent of the budget, though we are very cheap per credit hour. Mil levy makes up the rest. Land grant unis are mostly research funded, which mostly come from federal research grants paid out of income tax. Property taxes made up roughly 25 percent and declining proportion of revenue at my alma mater.

And who are the people funding that 25 percent? Here in Kansas, mostly farmers. You know, the people who pushed the income tax to replace property tax because their property was valuable and stable but income was low and variable. We don't have California's outrageous housing market (or their outrageous housing decline!). The suburbs are of course one important source of property tax, but it's not a majority. Besides, the suburbs are the ones approving property tax increases in violation of state constitution. No matter how much the educated wealthy want to fund public education this way, it's a bad structural problem that will not survive politics.

And the solution proposed isn't about soaking the underemployed. It's not to go to students and demand 10 percent of the average salary from everyone. Ten percent of what they are actually earning. Those that are stating on MeFi that they're fucked, well, there's no more student loans fucking them in that situation. It's between them and the institution now, in the form of a continuous workout loan.

I think the bigger problem is making the numbers meet. How much money is 10 percent over ten years? For a given salary X, tuition repayment is X*.10*10 = X. Someone else can calculate present value, but interest rates are low enough right now to simplify without much distortion.

So that means you'll pay one year's salary to the college. Which is high, even after time discount. But how much is a degree worth? The extra lifetime income is put at like a million dollars, so it's still a good deal, and the people who get the benefit pay for it in proportion. And the system ends tuition inflation, as the only way to raise tuition is to raise graduate salaries.

Well I gotta cut this comment short, looks like something's up with TurnItIn. Sorry for any errors that may appear for lack of review. I just think it's silly that liberal policy has to be "soak the rich", instead of smarter policy that encourages higher wages.
posted by pwnguin at 11:51 AM on September 4, 2010

Every dollar in savings creates a dollar of debt.

Actually, I think a dollar in savings can create up to nine dollars of debt. Given the fractional reserve lending US banks participate in, the economy (or at least the amount of money spent, earned, lent and borrowed -- I'm not sure it deserves the name 'economy' anymore) must continue to grow or collapse. I take imperium's suggestion to be that "destructive phases" are collapses of at least part of an economy that allow debt and money supply to be reduced so growth can continue after the contraction.

There's a slightly subversive and conspiratorial animated film about fractional reserve lending, its problems and possible alternatives on the Internet that must have gotten some exposure on MetaFilter before. I used to show it to my intro to philosophy classes. The students who got it were always a bit shocked. The beginnings of dismay which crept into those young, well-scrubbed eager faces were one of the best parts of teaching for me. (Of course, in the interest of full disclosure, the look of on a student's face when he or she understood something was also one of the best parts of teaching for me. But teaching intro to philosophy one doesn't get to see the latter very often...)
posted by Wash Jones at 9:38 PM on September 4, 2010

Using debt as the major source of currency growth has a certain internal logic, so long as the debt consists of investment in new capital, and thus an increase in productive capacity. Unfortunately, the bulk of our debt is consumer debt, and that's just the opposite of capital investment.

I've been looking at the growth of consumer debt for years now, wondering what it would look like when the house of cards tumbled down. Now we know.

That mass of debt was the result of not paying wage-earners enough to buy the product of their labor, so their only choice was to borrow or go without. If they went without, the consumer-driven economy would collapse, so they had to be persuaded to borrow.

The hole we're in will only be filled by making sure wage-earners get enough money to support the economy. Part of that will be to end the current soak-the-wage-earner tax regime. Another part will be readjusting wages so they are a larger part of the distribution of money in the economy. The first part is easier than the second, although raising the minimum wage would be a big step toward getting there.
posted by Jimmy Havok at 12:02 AM on September 5, 2010 [1 favorite]

Thanks for the correction, planet, I hadn't been aware that the capital gains tax had a low-income discount in it now. However, I still stand by my contention that income should be taxed as income, not discounted according to whether it comes from one source or another. That simply encourages gaming, where people who can afford to play the game conceal higher-taxed income under the form of lower-taxed income.
posted by Jimmy Havok at 2:46 PM on September 5, 2010