Will the 2016 Election Include a Real Debate About Racial Justice in America?

May 1, 2015Andrea Flynn

Hillary Clinton's bold speech was a good start, but events in Baltimore show we're still a long way from addressing inequities.

Earlier this week Hillary Clinton used the first major policy address of her campaign to speak passionately about the systemic inequities and injustices that afflict communities of color in the United States, and presented herself as a markedly more progressive, empathetic, and authentic candidate than we’ve seen in the past.

Hillary Clinton's bold speech was a good start, but events in Baltimore show we're still a long way from addressing inequities.

Earlier this week Hillary Clinton used the first major policy address of her campaign to speak passionately about the systemic inequities and injustices that afflict communities of color in the United States, and presented herself as a markedly more progressive, empathetic, and authentic candidate than we’ve seen in the past.

Clinton’s remarks at Columbia University come against the backdrop of protests and unrest in the streets of Baltimore following the death of Freddie Gray, whose spine was nearly severed while in police custody. As Andrew Rosenthal wrote in The New York Times yesterday, our nation’s leaders should be at the forefront of a national conversation on “race, policing, and the crisis that exists in so many of our cities.” In many ways, Clinton’s remarks show she knows what the contours of that conversation should be, and that she has what it takes to elevate it to the forefront of our national consciousness.

“From Ferguson to Staten Island to Baltimore, the patterns have become unmistakable and undeniable,” she began, as she listed a handful of the men whose lives have been cut short as a result of police violence. Walter Scott of Charleston. Tamir Rice, the 12-year-old from Cleveland. Eric Garner of Staten Island. And now Freddie Gray in Baltimore.

“We have to come to terms with some hard truths about race and justice in America,” she said, adding that there is something “profoundly wrong” when Black men are more likely to be stopped and searched by police, charged with crimes, and handed longer prison sentences than their white peers; when 1-in-3 young Black men in Baltimore are unemployed and approximately 1.5 million Black men are missing from their families and communities as a result of incarceration and premature death.

Clinton could have kept her remarks limited to the broken criminal justice system, but she ventured further, acknowledging that the fractures in that system are just one cause—and also a symptom—of deep social and economic injustices that must be corrected if communities of color are to live safe, healthy, and economically secure lives. 

We also have to be honest about the gaps that exist across our country, the inequality that stalks our streets. Because you cannot talk about smart policing and reforming the criminal justice system if you also don't talk about what's needed to provide economic opportunity, better educational chances for young people, more support to families so they can do the best jobs they are capable of doing to help support their own children…

You don't have to look too far from this magnificent hall to find children still living in poverty or trapped in failing schools. Families who work hard but can't afford the rising prices in their neighborhood. Mothers and fathers who fear for their sons' safety when they go off to school—or just to go buy a pack of Skittles. These challenges are all woven together. And they all must be tackled together.

She enumerated the real marks of a nation’s prosperity: how many children can escape poverty and stay out of prison; how many can go to college without being saddled with debt; how many new immigrants can start small businesses; and how many parents can get and keep jobs that allow them to “balance the demands of work and family.” These indicators, she said, are a far better measurement of our prosperity “than the size of the bonuses handed out in downtown office buildings.”

In many ways, it is a sad commentary on the state of our nation’s politics that Clinton’s speech feels significant. But given our political discourse on race (or lack thereof), and the gender, race, and social and economic inequities that continue to rage on unchecked, it did indeed feel significant.

Of course, Hillary didn’t have far to climb to pass the low, low bar that has been set by Republicans. This week we saw members of the GOP blame the protests and uprising in Baltimore on everything from President Obama inflaming racial tensions (thank you, Ted Cruz) to the legalization of same-sex marriage (that gem of wisdom from Representative Bill Flores of Texas). GOP presidential hopeful Rand Paul blamed the “breakdown of the family structure, the lack of fathers, the lack of sort of a moral code in our society” and remarked on how glad he was that his train didn’t stop in Baltimore because it’s depressing, sad, and scary. And Jeb Bush proposed that there be a rapid investigation into the death of Freddie Gray “so that people know the system works for them” (even though—as Rosenthal pointed out—it clearly doesn’t).  

Clinton’s remarks were of an entirely different caliber than we’re hearing from the GOP (not that rising above that nonsense alone should win one points). But she still has a steep road ahead to convince justifiably cynical voters that she will run her campaign—and the nation, should she become our next president—with the same commitment to racial and economic justice that she espoused yesterday. The 2008 campaign left a bitter taste in the mouths of many progressives, especially those in communities of color. And, as Bill Clinton himself said yesterday, it was the tough-on-crime policies of his own administration that led to the over-policing and mass incarceration that his wife criticized.

It remains to be seen if yesterday’s speech will mark a real evolution in her long political career, and not, as some suspect, a calculated political pivot to appease the voters she will need to win this campaign. All things considered, it was a bold start to what will be a long campaign. This is the Hillary many have been waiting for. This moment requires a leader who will boldly challenge the inequities and injustice in our society—whether at the voting booth, on the job, in our neighborhoods, or within our criminal justice system—and lay out a clear path forward. That's the challenge and opportunity for Hillary; we don't yet know if she will accept it.

Andrea Flynn is a Fellow at the Roosevelt Institute. Follow her on Twitter @dreaflynn.

Share This

Clinton's Executive Pay Comments Show We're Still Too Focused on Fairness

Apr 17, 2015Susan Holmberg

Hillary Clinton surprised many progressives earlier this week with her remarks on a model populist issue. "There’s something wrong when CEOs make 300 times more than the typical worker. There’s something wrong when American workers keep getting more productive…but that productivity is not matched in their paychecks.”

Hillary Clinton surprised many progressives earlier this week with her remarks on a model populist issue. "There’s something wrong when CEOs make 300 times more than the typical worker. There’s something wrong when American workers keep getting more productive…but that productivity is not matched in their paychecks.”

Indeed. From 1978 to 2013, executive compensation at American firms rose 937 percent, compared with a sluggish 10.2 percent growth in worker compensation over the same period. In 2013, the average CEO pay package at S&P 500 Index companies was worth $11.7 million. Numbers for 2014 are just starting to be released, but Microsoft’s Satya Nadella is thus far topping the list at $84 million in mostly stock awards.

Too often the CEO pay debate, which tends to come into focus during our annual rite of corporate proxy season, hinges on a question of ethics. Is paying CEOs excessive amounts fair to workers? No, of course not, as so many fast food workers, whose CEOs make approximately 1,200 times more than they do, rightfully voiced yesterday.

One of the problems, however, with expressing CEO pay as a fairness issue is that it is too often countered with accusations of envy. And this doesn’t get us very far. (Note that Clinton’s language—“there’s something wrong”—plays into the fairness framing.) Our efforts to reform CEO pay would be much stronger if we also talked about how bad the status quo is for our economy and thus our society.

There are two main reasons CEO pay should be a concern to anyone who cares about economic prosperity in the United States, including Hillary Clinton. One reason stems from the total amount CEOs are paid. The other relates to the structure of CEO pay, in particular that the bulk of their compensation comes in the form of stock options and stock grants.

Total Amount of CEO Pay

A handful of high-profile economists—Thomas Piketty, Joseph Stiglitz, and Robert Reich, to name a few—have begun to make the case that a high degree of economic inequality precipitates financial instability because it leads to a decline in consumer demand, which has tremendous spillover effects in terms of investment, job creation, and tax revenue, not to mention social instability.

Research clearly demonstrates that the growth of executive pay is a core driver of America’s rising economic inequality. According to the Economic Policy Institute, “[e]xecutives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.” Another calculation by economists Ian Dew-Becker and Robert Gordon finds that the large increase in share of the 99.99th percentile is mostly explained by the incomes of superstars and CEOs.

The Structure of CEO Pay

Several studies show that equity-heavy pay, because it makes executives very wealthy very quickly, distorts CEOs’ incentives, inducing them to take on too much risk. Instead of bearing this risk themselves, they shift it onto the rest of society, as we saw during the financial crisis. This model also encourages executives to behave fraudulently, as in the backdating scandals of a decade ago, and lessens their motivation to invest in their businesses. According to economist William Lazonick, in order to issue stock options to top executives while avoiding the dilution of their stock, corporations often divert funds to stock buybacks rather than spending on research and development, capital investment, increased wages, or new hiring. To top it all off, these pay packages cost taxpayers billions of dollars due to the performance pay tax loophole.

Hillary Clinton’s comments on CEO pay could be a signal that she is willing to adopt at least some of the progressive messaging championed by Senator Elizabeth Warren. We can enhance that message by making better economic arguments for why we need to reform skyrocketing CEO pay.

For more, see my primer on the executive pay debate.

Susan Holmberg is a Fellow and Director of Research at the Roosevelt Institute.

Share This

For U.S. Women, Inequality Takes Many Forms

Apr 14, 2015Ariel Smilowitz

The gender wage gap is a complex problem, and we'll need to address factors like race and region to solve it.

The gender wage gap is a complex problem, and we'll need to address factors like race and region to solve it.

Although we are only a few months into 2015, it has already proven to be a watershed year for women’s rights around the world. On the heels of the International Women’s Day March for Gender Equality, the He for She and Planet 50-50 by 2030 Campaigns, and the twentieth anniversary of the Beijing Declaration and Platform for Action, international advocates and officials alike are coming together to evaluate the progress that has been made over the past several years. This raises the question: what is the current status of women in the United States?

The Institute for Women’s Policy Research (IWPR)—in partnership with a multitude of organizations including the Ford Foundation, the Roosevelt Institute Campus Network, and the Center for American Progress—just released the 2015 edition of its project on the Status of Women in the States, with newly updated data and trend analyses on women’s economic, social, and political progress in the United States. The findings? Although we have indeed experienced progress toward gender equity, it’s likely that we won’t see equal pay for American women within our lifetime. (For more on this topic, see this post by Roosevelt Fellow Andrea Flynn.)

The road to achieving gender equality in the U.S. is quite clearly checkered with significant potholes.

Over the next several weeks, IWPR will be releasing a series of reports that include data on U.S. women’s employment and earnings, poverty and opportunity, work and family, violence and safety, reproductive rights, health and well-being, and political participation. The data and trend analyses found in these reports can be explored by topic and differing demographics (women of color, older women, immigrant women, and Millennials, to name a few), as well as on a national or state level. The first two chapters on employment and earnings and poverty and opportunity have already been released, revealing a number of insights on the state of women within this country. Some highlights:

  • In just about every state in the country, Millennial women are more likely than Millennial men to have a college degree, yet Millennial women also have higher poverty rates and lower earnings than Millennial men.
  • Although more women are receiving high school diplomas and completing college than ever before, a considerable proportion of women either do not graduate high school or finish their education with only a high school diploma.
  • By the time a college-educated woman turns 59, she will have lost almost $800,000 throughout her life due to the gender wage gap.

There are incredibly large disparities throughout different regions of the United States; southern women are the worst off with regard to employment and earnings. Furthermore, the status of women differs notably by race and ethnicity, with Hispanic women having the lowest median annual earnings compared to other women.

In general, women’s economic security is directly linked to their family income, which includes earnings from jobs, but women tend to be concentrated in fields that lead to jobs with relatively low wages. Even women who do go into higher-paying fields still earn less than their male peers. This helps explain why, in 2013, about 14.5 percent of women ages 18 and older had family incomes that placed them below the federal poverty line, compared with 11 percent of men. However, even this estimate does not fully capture the extent of the hardship that women continue to face in the U.S.

What can we conclude from this data? As a recent article in The Washington Post puts it: “When it comes to equal pay, the American woman is stuck in a proverbial waiting room. But the number on her ticket, the length of her stay, largely depends on where she lives and to whom she was born.” In other words, the status of women in this country is incredibly complex, and as a result, there is no simple, one-size-fits-all solution to achieving gender equality.

Gender equality is an intricate mosaic, a picture that cannot be complete without understanding and exploring the dynamic regional, national, and demographic factors at play. As a result, we cannot approach these issues without thoroughly peeling back and exploring each layer. It is necessary for all of us to reassess how we measure, monitor, and evaluate the status of women so that we can effectively determine both the progress that has already been made toward achieving full gender equality and the challenges and obstacles that lie ahead.  

Ariel Smilowitz is a senior at Cornell University and the Northeast Regional Policy Coordinator for the Roosevelt Institute | Campus Network.

Share This

Four Reasons We Still Need Equal Pay Day

Apr 14, 2015Andrea Flynn

Happy Equal Pay Day!

It would certainly be happier if we didn’t need an Equal Pay Day, wouldn’t it?

But it’s 2015 and the wages of U.S. women continue to lag behind those of their male counterparts of equal age, education, and professional experience.

Happy Equal Pay Day!

It would certainly be happier if we didn’t need an Equal Pay Day, wouldn’t it?

But it’s 2015 and the wages of U.S. women continue to lag behind those of their male counterparts of equal age, education, and professional experience. More than 50 years ago President John F. Kennedy signed the Equal Pay Act, which prohibited discrimination “on account of sex in the payment of wages by employers.” At that time, women were paid 59 cents for every dollar paid to their male counterparts. In the half-century that has passed, that gap has shrunk by less than 20 cents; women today make approximately 78 cents for every dollar paid to their male counterparts. For women of color, the injustices are even starker. Black and Latina women are paid only 64 and 56 cents, respectively, for every dollar paid to white, non-Hispanic men, which represents an annual loss of nearly $19,000 for Black women and $23,279 for Latinas.

Conservatives like to scoff at this day. They argue away the gender pay gap by saying the data overstates the problem, and besides, women do things like have babies and step out of the workforce to take care of them, so it makes sense they would be paid less. This (il)logic ignores the fact that many women actually don’t ever step out of the workforce to take care of their children because they simply cannot afford to do so. Indeed, 95 percent of part-time workers and low-wage workers do not have access to paid family leave, and 2-in-5 U.S. workers (nearly 40 million people) are not guaranteed a single paid sick day. The conservative reasoning also suggests that it’s perfectly acceptable for women to be routinely penalized for having and raising their families, even though research shows that paid family leave makes it more likely that women will return to work and get paid at the same wage or higher.

Not only are women today still getting paid less than their male counterparts, but that pay inequity is compounding other circumstances that are driving U.S. families into a spiral of economic insecurity. Wages have been stagnant for roughly five decades. Out-of-pocket health care costs are on the rise. Conservatives are steadfast in their attempts (many of them successful) to dismantle the social safety net, weaken labor protections, and chip away at economic supports for working families. Minimum-wage jobs—two-thirds of which are held by women, including 22 percent by women of color—do not even begin to make middle-class life affordable in this country.

The rationale for equal pay seems obvious to many, but our continued inability to even make progress toward that end—let alone achieve it—is a clear indication that we still need to make the case. So here it goes.

1. It is the right thing to do. Period.

2. Guaranteeing pay equity would improve the lives of women and families.

According to a 2014 report released by the Institute for Women’s Policy Research (IWPR), implementing equal pay would mean an income increase for nearly 60 percent of women in the United States. Two-thirds of single mothers would get a 17 percent raise (equal to more than $6,000 a year), and the poverty rate among these families would drop from 28.7 to 15 percent. The increase in earnings would expand access to health care, food and housing security, and educational opportunities, and would have countless long-term benefits for children, who are especially vulnerable to the pernicious stresses of poverty.

3. Equal pay means a stronger economy.

The IWPR study found that if women were to receive equal pay, the U.S. economy would generate $447.6 billion in additional income—growth equal to 2.9 percent of the 2012 gross domestic product (GDP).

Pay equity would reduce poverty among working women by half and would therefore reduce the need for safety net programs that have become a lifeline for working families that cannot make ends meet. The total increase in women’s earnings as a result of pay equity would be 14 times greater than combined federal and state expenditures on Temporary Assistance to Needy Families (TANF).

4. It’s 2015. If not now, when?

If the gender pay gap continues to shrink at the snail’s pace of the past few decades, it won’t actually close until 2058. 2058! At this rate hover boards and moon vacations will be in vogue before women are paid an equal wage.  

The increased focus on inequality and growing support for progressive economic policies like paid sick and family leave and minimum wage hikes—not to mention an election cycle in which conservatives will need to prove they aren’t actually waging a war on women—provide a window of opportunity to push for equity once and for all.

I, for one, would like this day to be obsolete before another half-century passes by. 

Andrea Flynn is a Fellow at the Roosevelt Institute.

Share This

Felicia Wong: To Build a Better Economy, We Must Close the Racial Wealth Gap

Apr 9, 2015Laurie Ignacio

Our ongoing series about the good economy continues with a video featuring Roosevelt President and CEO Felicia Wong. When asked about what she would do to ensure a good economy in 25 years, she says her top priority is closing the racial wealth gap. After examining wealth over generations, she finds that wealth, more than income, is the most important factor that determines whether people can make it to the middle class and succeed.

Our ongoing series about the good economy continues with a video featuring Roosevelt President and CEO Felicia Wong. When asked about what she would do to ensure a good economy in 25 years, she says her top priority is closing the racial wealth gap. After examining wealth over generations, she finds that wealth, more than income, is the most important factor that determines whether people can make it to the middle class and succeed.

To learn more about the racial wealth gap, check out the following articles:

The Racial Wealth Gap Is Three Times Greater Than the Racial Income Gap

Today’s racial wealth gap is wider than in the 1960s

Wealth inequality has widened along racial, ethnic lines since end of Great Recession

Felicia Wong is the President and CEO of the Roosevelt Institute, which seeks to re-imagine the social and economic policies of Franklin and Eleanor Roosevelt for the 21st century. Felicia came to the Institute from the Democracy Alliance, where she led the development and assessment of the organization’s strategic investment portfolio. She holds a Ph.D. in political science from the University of California, Berkeley. Her doctoral dissertation on the role of race and framing in K-12 public education politics received the 2000 American Political Science Association award in Race, Ethnicity, and Politics.

Share This

Seven Ways Chicago Can Put Working Families Before Wall Street

Mar 24, 2015Saqib Bhatti

The ReFund America Project released a new report this morning, “Our Kind of Town: A Financial Plan that Puts Chicago’s Communities First.” The report lays out a plan for getting Chicago’s finances back on track without painful austerity measures, which exacerbate economic inequality by forcing working families to shoulder the cost.

The ReFund America Project released a new report this morning, “Our Kind of Town: A Financial Plan that Puts Chicago’s Communities First.” The report lays out a plan for getting Chicago’s finances back on track without painful austerity measures, which exacerbate economic inequality by forcing working families to shoulder the cost.

Over the last month, Moody’s Investors Service downgraded the credit ratings of the City of Chicago and Chicago Public Schools (CPS) to near junk level. Last week, Fitch Ratings followed by cutting CPS’s rating to just one notch above junk. Even though the major credit rating agencies are unreliable institutions, rife with conflicts of interest, a history of missed calls, and a reputation for using their ratings to push political agendas, these downgrades have put the issue of financial management front and center in Chicago's political debate. Questions about how best to manage the city’s money shine a spotlight on the competing interests of Chicago residents and the powerful Wall Street firms that have been profiting from the city’s financial problems.

In the developing world, the International Monetary Fund and World Bank require financially distressed governments to enact painful cuts in order to obtain financing. Moody’s and Fitch are similarly using these downgrades to push an austerity agenda in Chicago. These downgrades will benefit Wall Street firms because the city and CPS will be forced to take out more expensive products like credit enhancements and bond insurance to boost investor confidence in their bonds. Already, the city and CPS are on the hook for a combined $300 million in penalties connected to interest rate swaps as a result of these downgrades. But all of this is wholly unnecessary because none of Chicago’s governmental units are actually in any danger of defaulting on their bonds.

Moreover, this response will come at the expense of community services like education, mental health, and parks programs. Many politicians are already using the downgrades to call for austerity measures that would take a toll on Chicago’s most vulnerable residents and to justify slashing government workers’ pensions, in violation of the Illinois Constitution. State Representative Ron Sandack has even introduced a bill in the Illinois Legislature to allow municipalities to file bankruptcy in order to circumvent the state constitution’s protection of public pension funds.

The current discourse ignores the simple reality that the city is not spending too much on either public services or workers. The real problem with Chicago’s budget is that the city is hemorrhaging money on predatory financial deals with Wall Street banks and not properly taxing its wealthiest corporations and residents. Chicago needs a proactive agenda that puts the needs of communities first. In the short term, this includes measures like:

  • Recovering losses from predatory municipal finance deals. The City of Chicago, its related governmental units, and their pension funds should take all steps to recover taxpayer dollars when banks deal unfairly with them. This includes taking both legal and economic action to try get out of bad deals like interest rate swaps and recoup lost money.
  • Reducing financial fees by 20 percent across the board. The City of Chicago, its related governmental units, and their pension funds should press for negotiations demanding 20 percent reductions on all financial fees to force Wall Street firms to share in the sacrifices that Chicagoans are being forced to make every day.
  • Insourcing pension fund management. The City of Chicago and its related governmental units should bring investment management in-house for a significant portion of their pension funds’ investments, by hiring qualified staff with a proven record of effective management instead of paying Wall Street firms tens of millions of dollars each year to accomplish the same goal.
  • Ending corporate tax subsidies and tax breaks. The City of Chicago should end all corporate tax subsidies and tax breaks to major corporations, and claw back subsidies given to corporations in exchange for job creation if they did not live up to their goals of creating jobs for city residents. This includes tax subsidies from the city’s tax-increment financing (TIF) programs.

In the longer run, Chicago needs structural solutions. This includes:

  • Collective bargaining with Wall Street. The City of Chicago, its related governmental units, and their pension funds should identify financial fees that bear no reasonable relationship to the costs of providing the service and join with other cities in the region and across the country to create a new industry standard for fees and refuse to do business with any bank that does not abide by that standard.
  • Creating a public bank. The City of Chicago should establish a public bank that is owned by taxpayers and can deliver a range of services, including municipal finance, and provide capital for local economic development and affordable housing in Chicago’s neighborhoods.
  • Raising progressive revenue. The City of Chicago should work to raise progressive revenue by instituting measures like a graduated city income tax to force high earners to pay their fair share, a commuter tax on suburban residents who work in the city, and the LaSalle Street Tax on financial transactions at the Chicago Board of Trade and the Chicago Board Options Exchange. All of these likely require state approval, so the mayor would have to petition the state for authorization. California and Minnesota have both enacted progressive revenue measures in recent years that have helped solve their respective budget crises.

These steps will allow Chicago to reclaim power in its relationship with Wall Street and create a financial regime in the city that will put the interests of Chicago’s communities first.

Saqib Bhatti is a Fellow at the Roosevelt Institute and Director of the ReFund America Project.

Share This

The House GOP Budget Ignores the Evidence That Combating Inequality is Good for Economic Growth

Mar 19, 2015Tim Price

The budget proposal put forth by House Republicans this week has been roundly criticized as yet another attempt to enact massive tax cuts that would redistribute money to the top at the expense of middle- and low-income families. Republicans contend these cuts would pay for themselves by producing rapid economic growth, which would create the proverbial rising tide that lifts all boats. But this is the GOP’s same old so-called trickle-down economics with a fresh coat of we-care-about-the-middle-class paint.

The budget proposal put forth by House Republicans this week has been roundly criticized as yet another attempt to enact massive tax cuts that would redistribute money to the top at the expense of middle- and low-income families. Republicans contend these cuts would pay for themselves by producing rapid economic growth, which would create the proverbial rising tide that lifts all boats. But this is the GOP’s same old so-called trickle-down economics with a fresh coat of we-care-about-the-middle-class paint. In reality, nonpartisan experts agree that policies that directly help low and middle-income families and reduce inequality are the real key to growth. Here are the facts:

  • Inequality is holding back economic growth. A Standard & Poor’s report found that extreme inequality in the U.S. is a drag on growth. Due to that rising inequality, S&P revised the 10-year growth forecast for the U.S. down from 2.8 percent to 2.5 percent annually.  
  • We don’t have to choose between equality and prosperity. Recent research thoroughly discredits Okun’s Law, the economic belief that there is a trade-off between equity and efficiency. In a 2014 report that analyzed historical data across multiple economies, the International Monetary Fund actually found that “the combined direct and indirect effects of redistribution – including the growth effects of lower inequality – are on average pro-growth.”  
  • Taxing the rich won’t hurt the economy. Wealthy interests often claim that taxing them will slow growth, but the same IMF report found that “the best available macroeconomic data do not support that conclusion.”

Despite Republicans’ desire to portray themselves as protectors of the free market and the middle class, even these market-oriented organizations recognize that progressive, middle-class-friendly tax policy is better for the overall economy. Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz has released a plan for reforming the tax code to promote equitable economic growth, and there will be more to come through the Roosevelt Institute’s Inequality Project as we continue to seek solutions to America’s growing inequality crisis.

Tim Price is Communications Manager for the Roosevelt Institute. Program Associate Eric Harris Bernstein contributed research to this post.

Click here to read the Roosevelt Institute | Campus Network's response to the Republican budget.

Share This

America's Tax Code Is Broken, But the Rubio-Lee Plan Won't Fix It

Mar 4, 2015Eric Harris Bernstein

"We believe that America’s best days are still ahead. But we also recognize that restoring the shared prosperity that comes from a strong economy requires reforming the most antiquated and dysfunctional government policies, beginning with the federal tax system."

-Senators Marco Rubio and Mike Lee 

Finally, something we can all agree on. 

"We believe that America’s best days are still ahead. But we also recognize that restoring the shared prosperity that comes from a strong economy requires reforming the most antiquated and dysfunctional government policies, beginning with the federal tax system."

-Senators Marco Rubio and Mike Lee 

Finally, something we can all agree on. 

In their joint op-ed in this morning's Wall Street Journal, the two Republican senators proposed a new tax plan and argued that our current federal tax structure is broken, its problems "rooted in the same fundamental unfairness and inequity of a government that picks winners and losers."

Again, we here at the Roosevelt Institute welcome this realization. For too long, our tax code has helped the few at the expense of the many. Unfortunately, an analysis of their proposed solutions shows that the senators have come out on the wrong side of this argument. 

First, they propose lowering the top corporate tax rate to 25 percent. This would be a step worth discussing if not for the fact that, with offshore tax havens and a wealth of other tax benefits, America's largest corporations currently pay an effective rate of just 12.6 percent. In the words of Roosevelt Institute Chief Economist Joseph Stiglitz, it would seem that the problem is not double taxation, but no taxation.

The senators then argue that, in order to incentivize investment, they would make all capital expenditures 100 percent tax-deductible, suggesting that taxes have squeezed corporations out of the investment business. But if this is the case, then how do we explain the $2 trillion currently being held abroad by America's largest corporations? And what about the enormous sums that companies like Apple and Home Depot are spending on buybacks to enrich investors? 

In fact, new research from Roosevelt Institute Fellow J.W. Mason shows us that the link between corporate cash flow and productive investment has been all but severed since the shareholder revolution of the 1980s. Shareholders now pocket an increasingly large portion of corporate earnings and borrowing that would have once gone to capital investments, job creation, or raising workers’ pay. Given these facts, as well as the current level of historically high profts, it is clear that corporate investment is not suffering from lack of funding, and that more spending on corporate welfare is the wrong way to go.

Lee and Rubio suggest that corporate taxes drive American industries abroad. This is absolutely true: Corporations want to benefit from American security, infrastructure, and human capital, but they don't want to pay their share to maintain those invaluable assets, so they shelter themselves in tax havens like Ireland. The problem, from our point of view, is not, as Rubio and Lee suggest, that the tax code taxes corporations (indeed, that is what a tax code exists to do); the problem is that it allows wealthy corporations to avoid those taxes. 

We need policies that will ensure corporations contribute like the rest of us, not ones that will commit more public money to private enterprise. 

The senators state that their plan is guided by the principles of fairness, freedom, and growth. This raises the question: In whose mind is it fair to spend hundreds of billions of dollars on wealthy corporations, while Americans drive on pothole-pocked roads and send their children to overcrowded schools to learn from underpaid teachers?

For the individual income tax, Rubio and Lee propose reducing the number of brackets to two -- one at 15 percent and one at 35 percent. Even though they have been greatly reduced since the 1980s, lowering rates for middle-income earners is worth discussing. The far more significant part of this proposal, however, is the 11 percent tax break for top income earners, which would further reduce the amount of public funds available for things like roads and schools, and which would further tip our economic balance toward the wealthy.

The senators would likely argue that this tax break will stimulate productive spending, but trickle-down economics did not work under Reagan and will not work now.

Toward the end of their op-ed, the authors posit a series of pro-family tax reforms, like tax credits for children and tax breaks for couples filing jointly. These policies are rooted in a belief that families with married parents are more economically stable and productive than single-parent families. Again, this may be a point worth debating, but these miniscule incentives are scarcely more than lip service to the American middle class, which this plan largely forsakes in favor of more tax cuts for large corporations and the wealthy. 

More generally, Rubio and Lee frame their entire plan as a benefit to average Americans, but do this while glossing over policies that will only continue our current trend of supporting the wealthy at the expense of the country as a whole. The Stiglitz tax reform plan, on the other hand, offers a blueprint for a tax code that would bolster the middle class while driving growth and opportunity. 

Now that we’ve all agreed on the problem, we should look to solutions that economists tell us actually work.

Eric Harris Bernstein is a Program Associate at the Roosevelt Institute.

Share This

Four Ways to Prune a Rose: Why the NYT Missed the Mark on the Inequality Debate

Feb 19, 2015Eric Harris Bernstein

On Tuesday, the New York Times' data-minded blog The Upshot posted an article reporting on an inequality study performed by Georgetown University's Stephen J. Rose. The article's title boldly stated that "Inequality Has Actually Not Risen Since the Financial Crisis."

On Tuesday, the New York Times' data-minded blog The Upshot posted an article reporting on an inequality study performed by Georgetown University's Stephen J. Rose. The article's title boldly stated that "Inequality Has Actually Not Risen Since the Financial Crisis."

Although the study's analysis is mathematically correct, the study is framed and conducted in a way that makes its findings irrelevant to the larger discussion of inequality in America. Here's why:

1.    Rose's study examines income and ignores wealth, which is actually the most stark indicator of inequality in America today; the top 10 percent owns 93 percent of all stocks and 61.9 percent of all wealth. This is equivalent to judging someone's wealth by looking at their paychecks without considering the value and appreciation of the businesses, houses, cars, and bank accounts that are also in their name.

2.    Rose's analysis ends in 2011, so he does not consider the ongoing recovery, the majority benefits of which are once again going to the very wealthy.

3.    The current inequality dialogue, championed by Capital author Thomas Piketty and Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz, specifies that wealth is the primary driver of inequality, so singling out income makes the Rose study irrelevant to the important public discourse going on today.

4.    Even if we were to accept the income-only study as valid, there are many facts that call Rose's findings into question:

  • The income group he describes fell from a record historical high to a slightly lower historical high.
  • Higher incomes have continued to recover since the study's statistical conclusion.
  • The primary reason lower incomes didn't fall further is that they were bolstered by government transfers (see chart and caption below).

Rose examines post-tax-and-transfer figures rather than pre-tax-and-transfer figures and argues that this supports his thesis of declining inequality. In fact, the difference is largely due to the rising number of individuals who paid less taxes and qualified for more government benefits due to their loss of income. A greater number of people dependent on government assistance would not fit most definitions of a reduction in inequality.

Eric Bernstein is a Program Associate at the Roosevelt Institute.

Share This

The Politics of Responsibility – Not Envy

Feb 11, 2015Richard Kirsch

Americans are looking for politicians who ask the wealthy to take responsibility for their fair share of our society.

According to former Treasury Secretary Larry Summers – who is emerging as a key economic advisor to Hillary Clinton – the big political challenge in addressing economic inequality is not to embrace “a politics of envy.”

No, Mr. Summers – it’s not the politics of envy. It’s the politics of responsibility.

Americans are looking for politicians who ask the wealthy to take responsibility for their fair share of our society.

According to former Treasury Secretary Larry Summers – who is emerging as a key economic advisor to Hillary Clinton – the big political challenge in addressing economic inequality is not to embrace “a politics of envy.”

No, Mr. Summers – it’s not the politics of envy. It’s the politics of responsibility.

Summers was quoted in The New York Times about “what has emerged as a central question of her [Hillary Clinton’s] early presidential campaign strategy: how to address the anger about income inequality without overly vilifying the wealthy.”

The rich may imagine that blaming them for the struggles of the rest of us is driven by envy, but that’s their own conceit to make them feel good. Americans don’t resent the rich. While we might fantasize about winning the lottery, we are not consumed by jealousy. What most Americans understand is that they are struggling financially because the wealthy have rigged the economic and political system to benefit them at the expense of the rest of us. That’s not envy: it’s reality.

Summer’s formulation is meant to give intellectual cover to the real problem that Democrats like Clinton face: taking on those who finance their political campaigns. As the Times puts it: “And she [Clinton] must convince a middle class that feels frustrated and left behind that she understands its struggles, even as she relies heavily on the financial industry and corporate interests to fund her candidacy.”

There is a way to connect with people without “overly vilifying the wealthy.” The politics I would recommend to Clinton and other Democrats is that of responsibility.

There are two senses in which we can have a conversation about responsibility. The first is in explaining who is responsible for the financial squeeze on American working and middle class families. The second sense is to describe the kind of responsible behaviors that we can insist those who are responsible undertake to rebuild opportunity and security. The two are related, as one needs to be clear on who is responsible in order to identify how to fix the problem.

For example, wages are stagnant because corporations engaged in concerted strategies to limit the proportion of profits shared with workers, including: busting unions, rather than negotiating with them; shipping jobs overseas rather than paying higher wages to American workers; and aggressively using campaign contributions and lobbyists to undermine labor standards (minimum wage; overtime protection; etc) and labor laws. Corporations spent their huge profits on stock buybacks and CEO pay, rather than better compensation for workers.

Then there’s Wall Street’s culpability for using its political clout to shred financial regulations and oversight while engaging in the orgy of financial speculation and predatory lending that triggered the Great Recession.

Or tax policy, where corporations pushed to reduce their proportion of taxes paid to the federal government and by the wealthy so that they now pay a lower share of taxes than the middle-class. The result:  working and middle class families pay higher taxes and more for public services. A glaring example is the enormous rise in the cost of public higher education, as funding for public colleges and universities has been slashed.

The economic story about who is responsible requires acknowledging the democratic story. One thing that Americans on the left and right agree on is that the wealthy and corporate lobbyists have hijacked our democracy. That’s not cynical – it’s true. And it is a major reason why so many have given up on government working for them, or solving the problems they face.

None of this is “over-vilifying the wealthy.” It is describing the reality that Americans understand. As we saw in the election this past fall, Democrats who fail to identify those responsible will lose, as base Democrats stay home and white working-class voters turn to Republicans who assign blame to the government and the poor.

Identifying those who are responsible, as I’ve done above, drives the power of solutions to address those problems. For example, corporate suppression of wages is fixed by: revitalizing labor law and enforcement; raising labor standards like minimum wage and earned sick days; creating new workplace protections, like paid family leave; changing the rules on stock buy-backs; and limiting CEO compensation.

Addressing the adverse impact of Wall Street’s drive for speculative profits calls for taxing speculative trading, breaking up the big banks, stopping predatory lending, and providing new, publicly backed mechanisms for financing the residential and community lending that banks have abdicated.

Revenue raised from reversing tax breaks for corporations and the very wealthy can be used to invest in services families need like affordable child care and free community college, proposals in President Obama’s new budget.

Instead of vilifying the wealthy, the politics of responsibility can lift up corporate leaders and wealthy Americans who are examples of responsible behavior. President Obama has done this occasionally, for example, lauding Costco for its high pay and good benefits for big box stores. Last week, Aetna announced it was going to raise wages and benefits for its lowest-wage workers. Warren Buffett has a “rule” bearing his name, for proposing that the wealthy shouldn’t pay lower shares of taxes than their secretaries. Buffett’s example is particularly important because he’s calling for government action, not just setting an example through his own behavior.

The handful of corporate leaders who are acting responsibly are also acting in their own long-term self-interest. They understand that their businesses do better with workers who get paid decently. They realize they need an educated workforce. They may even comprehend that if workers get paid more, they’ll have more to spend, driving the economy forward.

The real emotional challenge in addressing inequality is not envy by the 99 percent for the 1 percent. It’s the very thin skins of the super-rich. President Franklin D. Roosevelt, born one of the 1 percent, understood this. FDR framed the question of wealth and responsibility brilliantly when he said:

Government can deal and should deal with blindly selfish men. But that is a comparatively small part – the easier part of our problem. The larger, more important and more difficult part of our problem is to deal with men who are not selfish and who are good citizens, but who cannot see the social and economic consequences of their actions in a modern economically interdependent community. They fail to grasp the significance of some of our most vital social and economic problems because they see them only in the light of their own personal experience and not in perspective with the experience of other men and other industries. They, therefore, fail to see these problems for the nation as a whole.

There were some prominent capitalists who supported New Deal programs, including banking reforms. But of the rest, FDR famously said, “I welcome their hatred.”

At the end of the day if Hillary Clinton or any other Democrat is going to champion the policies essential to rebuilding the middle-class and creating a new era of broad, sustainable prosperity, she will have to join FDR in applauding those businesses who worked for the benefit of all and welcoming the hatred of those who resist the fundamental changes needed to build an America that works for all of us.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

Share This

Pages