Trickle-up Economic Stimulus and Investment

The economic news has been contradictory in the last few weeks. Bad news started the cycle with real gross domestic product decreasing at an annual rate of 2.9 percent. Good news followed with solid job growth and the lowest unemployment in five years, 6.1 percent.

Regardless of whether the economic news is good or bad overall, many people think the economy is stuck in low gear. While people at the upper end of economic ladder have seen their incomes substantially increase, those in the lower- and middle-class have seen their incomes stagnate for the last several decades.

If we want robust economic growth for both the short- and long-term, then a bold plan is needed that combines stimulus with investment in physical and human capital. The right plan would lift everybody, especially those people who have not seen economic benefit for decades.

The country anxiously awaits leadership that will provide such a plan. Neither party has produced this.

Republicans’ irrational insistence that the debt and deficit are serious problems causes them to mount attacks on government spending that often contain false information. Simultaneously, they argue that the only long-term solution to government spending is to cut taxes and entitlements. Republicans commitment to disproven economic policies precludes them from proposing anything that might actually work—more on that later.

The president’s and Democrats’ advocacy for economic stimulus plans prevented a worse economic disaster, but the plans were far short of what was actually needed. The Democrats also bought into some of the concerns about the debt and deficit. The feeble attempts by the Democrats to make their case plus their tepid economic stimulus plans combined with Republican intransigence blocked the policies necessary for economic growth.

Investigative reporter David Cay Johnston calculates that the Bush era tax cuts have cost the economy $6.6 trillion in 12 years, and he says, “The country needs to stop the continuing economic damage by adopting different policies.”

A bold plan would initiate a trickle-up economic strategy by implementing the following:

  • Fund necessary infrastructure repairs to boost the economy.
  • Modify the tax code to remove tax breaks and determine taxes based only on amount of income.
  • Implement a single-payer health care system.
  • Insure that basic needs are met—food, housing, etc.
  • Publicly fund education though college.

Ever since Ronald Reagan’s presidency, the country has mostly implemented trickle-down economics, which has been disastrous for everybody except those at the top. Joseph Stiglitz, a Nobel laureate in economics, gives a lucid explanation of the problem, “Trickle-down economics is a myth.” Republicans, if they wish, can continue to be the “myth party” that pushes for ineffective policies.

The American Society of Civil Engineers produces an infrastructure report card every four years. The most recent grade was a barely passing D+. The ASCE calculates that we need to spend an extra $201 billion per year for the next eight years to rebuild our infrastructure. The ASCE also estimates that not rebuilding our infrastructure will cost 3.5 million jobs by 2020. Furthermore, a recent study by the Brookings Institute found that many of the jobs created by rebuilding infrastructure are well-paid long-term positions.

Currently, the lack of infrastructure funding is so dire that the Highway Trust Fund is low and construction projects may need to be curtailed, which would slow down the economy even more. In previous years, highway funding was bipartisan, but now even this infrastructure effort is threatened. Maintaining highway funding would preserve an estimated 700,000 jobs.

Rep. Chris Van Hollen (D-Md.) and Rep. Sander Levine (D-Mich.) have proposed a bill to replenish the highway fund by closing loopholes that let companies escape taxes on overseas profits.

Van Hollen’s and Levin’s proposal illustrates another aspect that is needed to implement trickle-up economics, the end of tax breaks and loopholes—technically called tax expenditures—that benefit the wealthy at the expense of others. These tax expenditures cost more than $1.1 trillion per year and take various forms. For example, 4,000 taxpayers in the top 1 percent had no federal income tax liability in 2013, and many profitable corporations paid no federal income taxes.

These figures indicate that we could easily pay for necessary infrastructure repair, but even if we cannot change the tax code now, deficit spending would be appropriate to rebuild infrastructure and boost the economy.

In addition to removing tax expenditures, the tax code should be changed to determine taxes owed based on amount of income, without regard to source. Currently investment income often is taxed at lower rates than wages. The tax code would be much simpler if two people who made $50,000 paid the same amount in taxes regardless of whether that income was from dividends or wages. As a corollary, this would mean allocating a certain percentage from general revenue to fund Social Security and Medicare, which would eliminate the need for separate FICA taxes on wages.

While infrastructure funding is essential for physical capital, our country has ignored its more important asset, people. It is time to invest in our human capital.

As the richest country in the world, we can afford to insure that everybody has enough food, clothing and shelter. It is disgraceful that we let people go hungry, and even worse that we allow this while wealthy individuals and corporations pay next to nothing in income taxes.

Furthermore, we are not meeting our nation’s health care needs. While the Affordable Care Act, aka Obamacare, made medical care more available and affordable, it unfortunately maintains the current for-profit insurance-based system. This will continue to cause people financial stress and still leaves 31 million people uninsured. This system is also unlikely to reduce costs.

A single-payer health care system solves these problems by:

  • Covering everybody – Single-payer provides automatic universal coverage.
  • Eliminating out-of-pocket expenses – Under a single-payer system, co-pays and deductibles are not required. This eliminates out-of-pocket expenses, making health care affordable for everyone. When you go to a doctor or hospital, you do not need your wallet, and the clerk does not need to check your insurance status.
  • Allowing you to choose any medical professional or hospital – Since there are no restrictions imposed by limited insurance networks, a single-payer provides more freedom.
  • Stabilizing costs – Single-payer would lower or maintain costs at current levels making health care affordable for individuals and the country.

According to Gerald Friedman, an economist at University of Massachusetts, Amherst, we would have saved nearly $600 billion this year by implementing a single-payer system. In 2023, we would spend $1.5 trillion less than under our current health care system, reducing health care costs by roughly 25 percent. Friedman also states that the current health care system would likely “swallowed up all the increase in compensation” that workers receive unless we adopt single-payer any benefits from higher wages could be eliminated.

Student loans are greatly reducing the spending power of at least a generation of young people, and student-loan debt currently exceeds $1 trillion. To prevent this debt from burdening the individuals and the country, we must guarantee public education through college or vocational school for everybody. Education is one of the most important investments we can make in this country’s human capital.

The Republicans seem intent on railing against government, so there is little hope that they will increase spending on our physical and human capital. Meanwhile, Democrats provide ideas that stop short of what we need. Both parties must be bold enough to make the necessary investments.

We can either trudge along with trickle-down economics, or we can implement trickle-up policies that will thrust the economy forward by growing our physical and human capital. The choice is either myth or reality. Let’s choose the only thing that works—reality.

Leave a Reply

Your email address will not be published. Required fields are marked *