Obama Can Thank Women Voters By Supporting Real Economic Equality

Nov 15, 2012Bryce Covert

As part of our series "A Rooseveltian Second Term Agenda," a way to recognize the economic needs of the women who helped re-elect President Obama.

As part of our series "A Rooseveltian Second Term Agenda," a way to recognize the economic needs of the women who helped re-elect President Obama.

Both candidates spent a lot of time and energy courting women’s votes this cycle. But as predicted, the gender gap yawned on Election Day and pushed Obama to victory with a 10-point gender gap between him and Romney. How can President Obama thank the women who voted for him as he starts shaping the agenda for his second term? There are a variety of general economic policies that will benefit everyone, including women, such as spending federal stimulus money to kick-start a sluggish economy, ensuring the jobs being created in the recovery pay enough to support workers and their families, and bolstering a failing safety net to support the most vulnerable among us.

But while women hold down half of the jobs in our economy, they still face unique challenges and obstacles to full economic equality. If President Obama cares about women’s economic welfare as much Candidate Obama indicated, there are some important issues he can take on in the next four years.

  1. Truly equal pay for equal work: President Obama often talks about the fact that the first bill he signed into law was the Lilly Ledbetter Fair Pay Act, which helps address the gender wage gap. The act gives women more time to file a claim alleging discrimination since the truth may take a long time to surface. But while the act gets talked about like a panacea, it’s far from it. The number of pay discrimination complaints filed with the EEOC fell since the signing of the act while the pay gap widened. This is because the gap is caused by a complex array of factors: occupational segregation, hostile courts, and plain old discrimination. A first step to supplement the Lilly Ledbetter Act would be prohibiting salary secrecy, forcing employers to allow employees to talk about their pay with each other, something half of all workers cannot currently do. It will be next to impossible for women to address discrimination if they don’t even know it’s happening. But we also have to talk about how to move women into nontraditional fields, appoint judges to the courts that will stand by women when they sue for discrimination, and raise pay for the service sector jobs that women already dominate. These are large issues, but without putting them on the agenda they’ll continue to hamper women’s equality.
  1. Paid time off to care for family: We are one of just three countries among 178 that doesn’t guarantee any paid maternity leave benefits. Fifty countries go further to offer leave for fathers. Among the 15 most competitive nations, we’re the only one that doesn’t have a paid sick days policy. The reality is that the work of caring for children – when they’re very young, sick, or not in school – still falls mostly to women. Yet they can still lose their jobs when they need to miss work for this important caretaking. And without offering paid benefits, we force many women to take on debt or go hat in hand to loved ones and friends to get through. Not only will paid family leave benefit women, it will benefit men and help to change the care work equation. Men are more likely to take time off to be with a new child if the leave is paid – unsurprisingly, since families have such a hard time financing the lost income. And when men do take leave, they become more involved in their children’s lives. Universal, paid leave policies improve quality of life for all workers while leveling the playing field for women.
  1. Significant support for child care: There are two sides to child care. On one are those who need help caring for family and as mentioned above, they are almost entirely women. On the other are the caregivers, also almost entirely women. Our support for child care is pretty dismal and getting worse. The cost of putting two children in center care exceeds median rent in all 50 states. At the same time, the majority of states have pulled back on child care assistance for two years in a row. The Child and Dependent Care Tax Credit that gives parents who are paying for child care a tax break has only increased once in the last 28 years. The government needs to invest heavily in supporting working parents, men and women alike, with skyrocketing child care costs, allowing all who can and want to go to work to leave their children with quality caretakers. This is also a way to begin ensuring that these caretakers are well paid. In a national survey of in-home child care providers, the most common answer to how much they make in a week is $500, or $26,000 a year – a pitiful amount, not to mention that many don’t receive any benefits. Given how much families struggle with the cost and how many domestic workers don’t make enough to live on, the government must step in.

American women have flooded the labor market in the last half-century. But our economy and society haven’t changed enough to meet them halfway. President Obama won’t be able to fix all of these problems in his second term. But he can begin to address them and put a spotlight on these societal problems that we still think of as private concerns. I’m sure women voters would be grateful.

Bryce Covert is Editor of Next New Deal.

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Going on the Offensive Against Poverty in America

Nov 14, 2012Georgia Levenson Keohane

As part of our series "A Rooseveltian Second Term Agenda," suggestions for how Obama can get serious about combating poverty.

As part of our series "A Rooseveltian Second Term Agenda," suggestions for how Obama can get serious about combating poverty.

Hurricane Sandy’s violence was a tragic reminder of some important truths in American life: climate change matters, government matters, and caring for the vulnerable – for those severely afflicted by circumstances beyond their control – not only matters, it is the essence of who we are as a people. Today, our country’s vulnerable include the 46 million people – nearly one in six – who live in poverty, and 16 million of those are children. This deprivation is particularly grievous in context: earnings for the wealthiest continued to grow last year, while income for the rest stagnated or fell. These levels of poverty and inequality are not only unconscionable, they threaten our economic security.  When it comes to fighting poverty, what do we make of the Obama team’s record and, more importantly, what should be its priorities for the next four years?

The Poverty of the Debate on Poverty

Poverty’s notable absence during the campaign season disappointed and galvanized many progressives who hoped to insert the issue into the election platform and political debates. Those concerns echoed earlier remonstrations that that the president had failed to address poverty over the last four years with the passion or federal muscle promised in his 2008 campaign. “Barack Obama can barely bring himself to say the word ‘poor,’ Bob Herbert wrote this spring in The Grio. Paul Tough, Herbert’s public conscience heir at the New York Times, explains the political conundrum behind the administration’s focus on the economic woes of a broader set of struggling Americans rather than on the poorest per se: “how do you persuade voters to devote tax dollars to help the truly disadvantaged when the middle class is feeling disadvantaged itself?”

While we may long for the soaring rhetoric of 2008, the fact is these broad-based policies have worked. They have not eradicated poverty, but many important domestic programs – the stimulus, in particular, which included new and expanded tax credits, enhanced unemployment insurance, and increased eligibility for food stamps – kept an estimated seven million out of poverty and cushioned against even greater hardship for more than thirty million people already below the federal threshold. Not to mention that health care reform extended coverage to tens of millions of uninsured Americans (in part by expanding access to Medicaid). The federal poverty measure does not take into account non-cash transfers, including food stamps, housing subsidies, and health care benefits like Medicare and Medicaid. When these are factored in, it appears as though poverty has not increased under Obama’s tenure.

Pivot from Defense to Offense

When it comes to a new kind of war on poverty, the Obama administration must recognize that it now has the freedom – and, arguably, an electoral mandate – to address need in this country in ways that serve the struggling middle class and target programs and policies to help the poor. This is not an either/or proposition. And of course job creation is the primary lever: there is no better way to help all Americans in the next four years and beyond.

In terms of programs to address persistent poverty, however, Obama’s second term agenda must pivot from defense to offense, graduating from “could have been worse” blood staunching to an even greater commitment both to long-term investments in human capital and interim supports that shield children and families from some of the most severe privations of life in poverty.  Here are three places to begin:

(1)  Redouble investment in comprehensive and community-wide approaches to fighting poverty. Tough laments that, while in 2008 Obama called for “billions” for programs like Promise Neighborhoods that are modeled on Harlem Children’s Zone’s and provide a broad swath of interventions for poor children and their families, the administration to date has spent just $100 million on pilot programs in 37 communities across 18 states. Ongoing and expanded support for these kinds of holistic programs in cities across the country would make for a sound investment in human potential, using federal structure and funds to support local and community generated solutions.

(2)  Commit more fully to investments in high quality early childhood education and childcare, which yield substantial returns in the school success and life prospects of low-income children and their working parents. This means expanded tax credits and other financial supports for families paying for childcare. It also means increased funds for proven programs like Head Start and Early Head Start, particularly when state governments across the country, with budgets in crises, have been forced to cut Pre-K programs. Head Start and Early Head Start are chronically underfunded and therefore do not reach many eligible families.

(3)  Reform welfare reform, so that it provides real ‘safety’ for poor families in tough economic times. Although it has long been touted as a success of the Clinton administration, the 1996 welfare reform, which devolved much of TANF to the states and linked cash assistance to stringent work requirements, was structurally flawed. First, it was not indexed for inflation (and is funded at its 1996 level). Second, as a block grant it leaves poor people dependent on (now) cash-strapped states for support. Third, the original work requirements were predicated on the existence of work, not on the stubbornly high unemployment rates of this recession. The federal government must reclaim a greater role in the redesign and provision of temporary assistance for needy families to help keep them out of extreme poverty in the way it has done with other critical strands of the safety net like food stamps and unemployment insurance.

With this second term, the Obama administration has the chance to broaden opportunity and to make vital advances in the fight against poverty.  

Georgia Levenson Keohane is a Fellow at the Roosevelt Institute.

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Showing Leadership By Putting Graduates to Work

Nov 13, 2012Joshua McKinney

As part of the "Millennial Priorities for the First 100 Days" series, a recognition of the need to address student debt levels and unemployed graduates.

As part of the "Millennial Priorities for the First 100 Days" series, a recognition of the need to address student debt levels and unemployed graduates.

In 1933, Franklin D. Roosevelt was faced with a widespread catastrophe. The Depression had given birth to shattering rates of unemployment, bank failures, and a widespread loss of confidence in government. From the start, FDR knew that what the people needed most was reassurance that under his leadership, they could weather the storm. In his inaugural address on a gloomy March morning, FDR said, "This nation asks for action, and action now. Our greatest primary task is to put people to work. I am prepared under my constitutional duty to recommend the measures that a stricken nation in the midst of a stricken world may require." Soon thereafter, he set a high standard for new presidents during his first 100 days, launching a raft of New Deal reforms over his first three months in office.

With a laundry list of issues and a divided congress, President Obama faces hurdles in acting and acting quickly. In the three months following his second inauguration ceremony, his actions need to provide the country with reassurance that this ship is moving in the right direction under his leadership. Perhaps his most important task will be addressing this through the lens of education policy.

Education has long been the primary driver of upward mobility in America, a fact that is truer now than ever before. Yet as the demands on schools to impart 21st century skills have increased, school quality has not kept pace across the country, resulting in an ever-widening achievement gap. Our primary and secondary schools are tested to death but provide little to no growth in our national education numbers. According to NPR’s Claudio Sanchez, “the class of 2012 scored the lowest average SAT reading scores since 1972” while also managing to take a nine-point dive in writing. The only area where we saw a national improvement was in math, where it stands only five points higher than 40 years ago. Overall, College Board, which commissions the SAT, reports that six in ten college students are not ready for college work. Students are now faced with the decision to enter college unprepared or not enter college at all. The ACT reported even more dismal numbers: only a quarter of the high schoolers who took the test were college ready.

What comes of those students who enter into college unprepared? According to Complete College America, about 41 percent of the high school graduates who enter college are required to take remedial courses when they start college. Even more alarming is that two-thirds of these students fail to earn their degree in six years, some accumulating unreasonably high amounts of college loan debt.

What happens to the students who pass on college altogether? Armed with a high school diploma and little to no marketable skills, these students all to often face unemployment.

Is graduating college in four years the remedy, as many proclaim? It helps, but many college students are unemployed as well. The common problem for all three sets of students is the lack of skills – a problem which has also become a crisis in America.

To expect President Obama and Sec. Duncan to address every aspect of the system as a whole within the first hundred days is unreasonable. We can, however, expect them to address the increasingly alarming student loan bubble and the skills crisis.

Since 1978, average college tuition has skyrocketed by over 900 percent, while grants and scholarships continue to be slashed and only given to a select group of students. The result? Students are forced to mortgage their futures with student loan debt. This, accompanied with dismal job numbers for college graduates, has many worried that graduates will default on their loans, causing the bubble to burst and result in seismic shocks through every facet of American life. It is paramount that this bubble be addressed by the national government or the effects could cripple the already fragile economy.

One way to address this would be to get more young people to work. This could be done by revitalizing our skills training across the nation and investing in current skills training organizations such as yearup. If the president uses this approach, he can simultaneously address the skills crisis and the student loan debt crisis. But this project is more complex than simply increasing funding. It would have to begin with a role change for many of the community colleges around the nation. This is not to call for them to become full-fledged technical schools, nor should they carry identical curriculums to that of four-year institutions. They should, however, increase the number of classes available for training local people in the skills they need to do the jobs available in the area around them. Since the budgets of many community colleges are strained already, President Obama could provide tax incentives to companies that send trained workers to teach classes at their surrounding community colleges. This is imperfect in many ways, but could very well work if the nuances are worked out. 

President Obama has 100 days to reassure the people that his leadership will move this country in the right direction, just as FDR did in 1933. If he can solve the student loan debt bubble while addressing the skills crisis, he will send a solid signal to the American people that this country is really moving forward. 

Joshua Mckinney is the Senior Fellow in Education Policy for the Roosevelt Institute | Campus Network and a political science and philosophy double major at Morehouse College.

 

Barack Obama image via Shutterstock.com.

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Mitt Romney, Reactionary Keynesian

Nov 6, 2012Mike Konczal

I meant to develop this into a larger work on the Right and economic stimulus but it never happened, and with the election today favoring President Obama, it is likely I won't get a chance. So here's part of it for the blog.

I meant to develop this into a larger work on the Right and economic stimulus but it never happened, and with the election today favoring President Obama, it is likely I won't get a chance. So here's part of it for the blog.

In December 2008 Mitt Romney wrote "A Republican Stimulus Plan" at the National Review, announcing "this is surely the time for economic stimulus." What should be in a Republican stimulus plan? First up, tax cuts. Tax cuts for capital income and corporations, and tax cuts overalls. But tax cuts aren't sufficient to the task, and some sort of direct spending will be required. However, since most infrastructure takes too long to get off the ground, "[s]pending to refurbish and modernize our military equipment is urgently needed, and it has a more immediate impact on the economy."

In 2008 Mitt Romney wanted to stimulate the economy with tax cuts and military spending. It's worth noting that two of the central planks in Mitt Romney's currently underdeveloped economic policy are a series of tax cuts and a dramatic $2 trillion dollar increase in military spending. But don't call it stimulus! Mitt's National Defense Plan wants to "modernize and replace the aging inventories of the Air Force, Army, and Marines," as in the stimulus plan, but this is now to address "Obama's failure" in foreign policy.

Mitt Romney's tax plan is meant to offset tax cuts by cutting tax expenditures. But the tax plan currently looks like an unassembled game of Mousetrap where you know several of the pieces are missing. It could work, but it isn't clear how it would. But even if Mitt Romney did offset his tax cuts by cutting expenditures, those expenditure cuts would likely be put into place over a period of years, years where the deficit would balloon further. (The Ryan Plan also balloons the deficit in the short term dramatically.) This would still work as stimulus.

So Keynesianism through tax cuts and the military. The military stuff really does add to what John Kenneth Galbraith referred to as "a new and reactionary form of Keynesianism with which to contend" where "Tax reduction would then become a substitute for increased outlays on urgent social needs." Or as Michael Harrington wrote, in a 1966 Encounter article titled "Reactionary Keynesianism," "in the United States it is quite possible to envisage a conservative Keynesian policy which substitutes tax cuts for social investments, increases the maldistribution of income (the rich and the corporations gain more from tax cuts than the workers and the poor) and maintains a prosperity as that term would be defined by business."

Liberals like to point out the contradiction of Republicans attacking economic stimulus while arguing that defense cuts will tank the economy, and they are right to do that. But I'm still having difficulty thinking through where the distributional impact of various ways of managing the economy, the type of society it builds, connects into the political ideology. I imagine we'll have more opportunities to see this in the aftermath of the election.

 

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Guest Post: Heather Boushey on Inequality and Growth

Nov 6, 2012Mike Konczal

Mike here: Special guest post by Heather Boushey of the Center for American Progress, responding to a recent citation of her work with Adam Hersh on inequality and growth (work we discussed here). The launch of this post was delayed on my end as a result of Sandy-induced work/email chaos.

Mike here: Special guest post by Heather Boushey of the Center for American Progress, responding to a recent citation of her work with Adam Hersh on inequality and growth (work we discussed here). The launch of this post was delayed on my end as a result of Sandy-induced work/email chaos. Hope you check it out, as well as their excellent report that is discussed within.

Inequality does appear to affect economic growth

by Heather Boushey

It is now a well-known fact that the United States has the highest levels of inequality among developed countries. Increasingly, the economics profession is questioning how this affects our economy, not only in terms of what it means for those at the bottom of the income distribution, but in terms of how high inequality affects economic growth and stability.

The New York Times recently published a thoughtful piece on the relationship of rising U.S. inequality to long-term economic growth. In the wake of that article, they published a Room for Debate online forum on this topic and Scott Winship, a scholar a the Brooking’s Institution was among those participating. Mr. Winship cites our report on the topic to discuss what he argues is inadequate evidence linking inequality and growth.

We are grateful that Mr. Winship acknowledges CAP's central role in this debate, but grossly mischaracterizes our conclusions. The quote he pulled from our report gives the false impression that our research supports the conclusionthat inequality is not a problem for economic growth.

Our argument is that we need to look specifically at the channels through which inequality affects economic growth, specifically in the U.S. context. For example, there is evidence that documents how the rich don’t spend as much of their income as the non-rich. If inequality keeps rising and the rich pull in a larger and larger share of national income, this stunts demand, the lifeblood of the economy.

Another mechanism is through entrepreneurship, which is often portrayed as the dynamic force in a capitalist economy. Yet, most entrepreneurs come from the middle class. The middle class provides both the economic security and access to education and credit that entrepreneursneed.

If inequality is due to the top pulling far away from the rest of the economy,which creates a very wealthy elite, this is often associated with a well-known economic phenomenon of “rent-seeking.” The wealthy will tend to use their outsized resources to garner a bigger piece of the pie, rather than on investments that will increase productivity and make the whole pie bigger. And, there is growing evidence that this is exactly what is happening to our economy, threatening long-term growth. For example, economists have been finding that as money has flowed into the financial sector, that industry has increasingly used its resources to promote policies that benefit itself only.

In opposition to Mr. Winship’s claim, the preponderance of evidence does supports the conclusion that inequality can hamper economic growth. We conducted a thorough review of the literature and in the quote he took, we were highlighting methodological limitations in a specific class of empirical studies. We also pointed out that cross-country panel data studies look at reduced form equations for growth and we argue that we should be thinking instead about a structural model.

Others have found our report to be data-driven. Jim Tankersley, journalist with the National Journal encouraged his readers to consume the report “in its entirety,” describing is as a “The bulk of Boushey and Hersh's sources aren't partisan in any way - just detailed, data-driven analysis from top economists.” This blog called it “the best up-to-date arguments that progressives discussing inequality should understand inside out.” And in a lengthy discussion on the subject last month by Jared Bernstein, former chief economist to the vice president, our work was used to frame a summary of the latest research on this topic. 

We are typically pleased to have our research cited in the paper of record, the New York Times. However, it is no fun to have our work grossly misrepresented.

 

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Transition Tasks: Commit to a New Model of Economic Growth

Oct 31, 2012Bo Cutter

The global economy is heading toward a huge transformation. Can America rise to the challenge?

Neither of our two major political parties have at their cores a commitment  to economic growth. In his second term, President Obama has an extraordinary opportunity to grab the golden ring, make a genuine commitment to sustainable, equitable growth, and follow that up with a credible, plausible entrepreneurial growth model.

The global economy is heading toward a huge transformation. Can America rise to the challenge?

Neither of our two major political parties have at their cores a commitment  to economic growth. In his second term, President Obama has an extraordinary opportunity to grab the golden ring, make a genuine commitment to sustainable, equitable growth, and follow that up with a credible, plausible entrepreneurial growth model.

But aren't both parties pro-growth in their platforms and their various position statements? Of course they are. It's a necessary ritual of political life. But for both the left and the right, growth is a residual - it's what you're for, after you get everything else you want. Moreover, both parties are wedded to whole sets of client groups whose agendas don't include economic growth at all.

The right wants austerity, low taxes, budget surpluses, preferably no government but at the most a small and passive government, no abortion, a Christian nation, and no immigrants - all before it wants growth. There will certainly be those who argue that some of these elements are essential aspects of an economic growth strategy, but I've yet to see a serious and specific growth model from the right and I've heard nothing about equitable and sustainable growth. In any case, the problem is that you can't just get elements of this list; holding today's right-wing coalition together requires that you get the whole package.

The left favors large active government almost as a principle, rather than a tool for something. By far it's highest priority is the current social safety net, unchanged forever. It does not regard debt or deficits as issues that matter. It is deeply contemptuous and dismissive of business, suspicious of markets, and is far more concerned about income distribution than about income expansion. It is very concerned - as it should be - about the short- and long-term effects of unemployment and it wants a sustainable and equitable world but sees no particular connection between these good things and economic growth. As with the right, one searches in vain for any useful theory or model of long run growth in the writings of the left.

The central attitude toward growth of both party philosophies is similar to the foreman on the loading dock who said, regarding his company's attitude toward quality, "It's in the slogan, and the vice president talks quality at least four times a year. But the assistant vice president talks shipping cases several times a day."

Other than playing whack-a-mole with each other over the short-term growth rate right now, the view of both the left and right is that the economy is a perpetual motion machine that will just keep rumbling along. But it isn't. Not ever and particularly not now. 

Economies have rhythms. They don't just march along forever at some preordained rate of growth. Big economies respond over decades, generations, to big impulses: revolutions in the cost of power, or transportation, or information; revolutions in the applications of these big cost shifts. These impulses spread throughout an economy, driving higher rates of economic growth, and then, as they become pervasive, lose their force. America has experienced such impulses, or waves, at least five times in the last 200 years. We are in the end phase of one such impulse and the very early stages of the next.

The "golden era" of the 20th century between roughly in 1950, and 1980 represented the full flourishing, the height of one such era and growth impulse. In these 30 years, the economy was dominated by large companies, managerial capitalism, and a financial system that evolved to meet those particular needs. The success of this era importantly shaped our expectations, our sense of how the world works, our institutions, and our politics. But as successful as this era was, the most important thing to know about it now is that it is over. Both parties - and both America's left and right - believe or at least act as though it is returning again, it's just around the corner. And it's the other guy's fault that it hasn't rearrived yet.

But it's not coming back. One reason among others is that we will never again see a world in which our economy dominates the world's economy. Beginning in the 1970s, as colonial empires collapsed and economic philosophies were revolutionized, major new nation states entered the same world economy we were in along with billions of new workers and households. At first that represented a boost to us, but as the economic sophistication of these economies evolved this new world meant vast and hard structural shifts for us. As Michael Spence makes clear in his book "The Next Convergence," much of the structural change we see and don't like comes from this changing shape of the world. Falling manufacturing employment, the 20-year slowdown in income growth, a large piece of income inequality, and the polarization of our labor force are all due in part to the changing shape of the global economy. (Just to be clear, the other major factor in all of these structural shifts is technological change.) 

We can't do anything about the shape of the world, but we can figure out how to change and thrive in this new environment. Which means we have to have a new growth model.

Fortunately, another technological revolution is occurring now and all of the elements of a new growth model are coming together. The model plays to American strengths and is there for us develop - unless we choose to be stupid. The model will require entrepreneurial capitalism, independent capital, high levels of private sector investment, equally high levels of infrastructure investment, mayors who see their cities as platforms for growth, and an educational revolution. It requires us to see that technological change can, uniquely, work for us. I've called it an era of mass specialization; it can be much more equitable and environmentally sustainable than the golden era.

And here lies President Obama's second transition task and a huge opportunity. He has to start immediately making this new growth model clear and comprehensible to Americans. He has to offer the hope that there is more to the future than just a repeat of the trends of the past. And he has to begin to propose the public policies that will allow the next growth era to be born. But above all, this will require that President Obama sees equitable, sustainable growth as the core of his governing philosophy for the second term.  Two good places to start with would be to put his endorsement of Simson-Rivlin-Dominici-Bowles in the context of a focus on growth and to make this the theme of his January 2013 State of the Union.

President Obama told me once at a very small breakfast in New York - long before he was president - that he wanted to be a transformational president. I believe him, but I don't think he's achieved that yet. Here's the chance. What could be more transformational, and more truly progressive, than to change America's governing political philosophy, wrench our politics away from its infatuation with wedge issues and a return to the 1950s, and usher in a new era of growth? As I started by saying, the golden ring is out there and the merry-go-round is heading toward it. 

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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What We’re Not Talking About When We Talk About Inequality

Oct 31, 2012Joelle Gamble

It's not enough to maintain a safety net that catches people when they fall. We have to keep them from falling in the first place.

It's not enough to maintain a safety net that catches people when they fall. We have to keep them from falling in the first place.

As a millennial, my generation has been told that if we simply work hard and go to college we will be able to achieve even greater economic gains than our parents. That promise now rings false. The gap between the economic have and have-nots is widening dramatically. Those of us who grow up in middle or low-income families may not have the opportunity to move up the socioeconomic ladder. With the widening gulf between rich and poor hampering economic opportunity so markedly that economist Alan Kreuger has named the phenomenon the Great Gatsby Curve, we need to ask ourselves if our political leadership is taking the right steps to address inequality in America.

The current election debate has focused on progressive tax policy and debt reduction as the central components of how government will both spur growth and reduce inequality in America. We only hear about how education, infrastructure, and health care play into the debate on specific occasions, such as when a question is directed toward one of those topics.

Meanwhile, the conversation around government priorities, outside of direct fiscal policy, has been limited to what programs people will lose if a particular candidate is elected. The two major presidential candidates, as well as many down ticket national candidates, regularly accuse each other of wanting to destroy social security “as it is” or restrict access to Medicare for seniors.

How we change tax rates on the middle class and how we continue to fund our social safety net are both important questions. Our government must ensure that the tax code is working fairly. It must make sure that social programs protect individuals when they fall. But the larger drivers of our economic growth and equality in the United States are being largely ignored in favor of these narrow topics. It is not enough to catch people when they fall. Government must, more importantly, ensure that its citizens have the equal access to resources that will make them less likely to fall in the first place. By providing equality and opportunity, we can spur long-term economic growth and prevent higher costs.

There are some investments that government can make that will do more for long-term economic growth and equality in America than others. Investing in education and job training, building a strong infrastructure of Internet access, and providing quality health care has been shown to not only reduce inequality but also promote economic growth.

Education and training are paramount in providing job opportunities. One of the largest factors affecting earnings inequality in the United States is technological change. Innovation has caused many modern companies and industries to become increasingly dependent on the availability of human capital found in the communities in which they are located. Areas with higher percentages of college-educated works are doing better at attracting and retaining business (and the jobs they bring) than areas with less educated populations. American workers need affordable access to education and skills training to be able to compete in the changing labor market.

Future worker competitiveness will also depend on building strong information infrastructure, especially increasing access to high-speed Internet, as Roosevelt Institute Fellow Susan Crawford rightly argues. Technology has created jobs that require workers to be able to work with large quantities of information and work collaboratively with partners who may not live in the same country, yet alone the same city. Even simple processes such as job applications or unemployment benefit applications now require access to a stable Internet connection. Currently, around one-third of Americans lack access to high-speed Internet.

As has been widely shown, access to quality, affordable health care reduces costs for individuals and their families, as well as American taxpayers as a whole. In the absence of access to affordable preventative care, only individuals with significant financial resources can pay for regular doctor visits, examinations and, potentially, long hospital stays. For those without large incomes, these basic health care needs can severely affect their ability to pay bills and sometimes send them into bankruptcy. Beyond basic care and insurance, affordable care for reproductive health services can serve as a step toward gender parity.

Not only do education, Internet access, and health care move us toward a more equal society, they also give taxpayers more for their tax-dollar. Individuals without access to quality schools and health care grow up to have fewer choices and opportunities to get high-skill, high-pay jobs that offer benefits. This makes them more likely to need social programs during the course of their lives. Making a stronger initial investment in programs such as education and heath care that give people opportunities is wiser than allowing the negative effects of failing to do so cripple the federal budget and the economy over the long run.

Making a stronger initial investment in opportunity via programs such as education and heath care is wiser than allowing the negative effects of not making those investments cripple the federal budget and the economy over the long run. None of this is to say that spending on defense, physical infrastructure, and our basic social safety net are not needed. But the United States needs to change its priorities and push for long-term planning with investments in long-term results. Education, information, and quality care are key to producing a more equitable society.

Joelle Gamble is Deputy Field Director of the Roosevelt Institute | Campus Network.

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FDR's Message to Obama and Romney: America's Strength Abroad Begins at Home

Oct 29, 2012David B. Woolner

FDR knew that America's willingness to fight inequality was more important than its ability to wage war.

Our strength is measured not only in terms of the might of our armaments. It is measured not only in terms of the horsepower of our machines.

The true measure of our strength lies deeply imbedded in the social and economic justice of the system in which we live.

FDR knew that America's willingness to fight inequality was more important than its ability to wage war.

Our strength is measured not only in terms of the might of our armaments. It is measured not only in terms of the horsepower of our machines.

The true measure of our strength lies deeply imbedded in the social and economic justice of the system in which we live.

For you can build ships and tanks and planes and guns galore; but they will not be enough. You must place behind them an invincible faith in the institutions which they have been built to defend. – Franklin D. Roosevelt, 1938

In their recent debate on foreign policy, both President Obama and Governor Romney made a point of linking America’s security with the health of the U.S. economy. Governor Romney, for example, argued that the ability of the United States to promote “the principles of peace” abroad “begins with a strong economy here at home,” while President Obama said that thanks to our experiments with nation-building in places like Iraq, “we've neglected…developing our own economy, our own energy sectors, our own education system. And it's very hard for us to project leadership around the world when we're not doing what we need to do here.”

Both candidates are correct, of course, in pointing out that a healthy economy—and in Mr. Obama’s case, a healthy education system and energy sector—are critical to the overall strength of the nation and hence our ability to project American influence overseas. But as has been the case with so much of this campaign, neither man had much to say about another critical element of national health that also plays an important part in our foreign policy: the social health of the nation.

Roughly 70 years ago, when the United States was living in a far more dangerous world than we are living in today, Franklin Roosevelt argued that America’s place in the world was not merely dependent on our military and economic power, but also dependent on our ability to create a society where social and economic justice were paramount. For Roosevelt, this meant building a nation which, in “arming itself for defense has also the intelligence to save its human resources by giving them that confidence which comes from useful work,” which in “creating a great navy has also found the strength to build houses and begin to clear the slums of its cities and its countryside,” and which as “the industrial leader of the world has the humanity to know that the people of a free land need not suffer the disease of poverty and the dread of not being wanted.”

Indeed, in gazing out over a world where anti-democratic forces were on the march, Roosevelt also insisted that “unhappy events abroad” had “re-taught us two simple truths about the liberty of a democratic people.” The first truth was that “the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power. The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.”

For Roosevelt and the generation that lived through the Depression and war, these truths were very real, and as such the conviction that the health and strength of the nation were linked directly to its ability to deliver social and economic justice for all its people was regarded, not as a luxury, but as a critical component of national security.

And yet on the campaign trail today we hear very little about the vital need to address the same disturbing trends that FDR warned us about all those decades ago: the vast and growing unequal distribution of wealth among the American people, the dangers of the rise of “private power” to the exercise of democracy, the fact that in America today roughly one-third of our citizens have rejoined the ranks of the poor or near poor.

No, instead what we hear is an endless stream of uninspiring messages about each candidate’s “plans” to create jobs, reduce the deficit, and “keep America strong.” But after living through four long years of the Great Recession and bearing witness to a society where 400 individuals now own more wealth that the bottom 150 million combined, the American people deserve more than mere platitudes. They want to hear their leaders articulate a vision for America that involves the creation of a better and more just society, a society that will inspire what Roosevelt called “the anguished common people of this earth.”

President Obama has offered hints of this in his call to move the country forward, but in the dangerous world that our parents and grandparents inhabited, Franklin Roosevelt went much further. In the final and anxious days of the 1940 election, for example, he reminded his fellow citizens that they were a generation living in “a tremendous moment of history,” where the “surge of events abroad” had led some to ask whether “the book of democracy” might “now to be closed and placed away upon the dusty shelves of time.” For Roosevelt the answer was clear and unequivocal:

All we have known of the glories of democracy—its freedom, its efficiency as a mode of living, its ability to meet the aspirations of the common man— all these are merely an introduction to the greater story of a more glorious future.

We Americans of today—all of us—we are characters in this living book of democracy.

But we are also its author. It falls upon us now to say whether the chapters that are to come will tell a story of retreat or a story of continued advance.

I believe that the American people will say: "Forward!"

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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“We’re All in This Together” vs. “You’re on Your Own” Government

Oct 15, 2012Elizabeth Stokes

As the Roosevelt Institute | Campus Network begins work on building a Government By and For Millennial America, Elizabeth Stokes defends the idea of government as a steward of the common good.

As the Roosevelt Institute | Campus Network begins work on building a Government By and For Millennial America, Elizabeth Stokes defends the idea of government as a steward of the common good.

Despite no specifics on how they will slash taxes and also balance budgets, it is clear that the Romney-Ryan budget plan follows an ideology we've seen before. Seeking to block grant Medicaid and voucherize Medicare, the Ryan budget, endorsed by Romney, fundamentally warps the meaning and purpose of the social safety net. This ideology views government as important not for guaranteeing the collective success of all, but for protecting the individual’s right to make his own success. It views government as important not for creating a framework that meets the needs of all citizens, but for supporting and responding to the needs of the market. And it sees government, if it must offer public provisions, as an entity that works best when its services are farmed out to the private sector.

But this view of government completely ignores its role as steward of the common good. To see why this role is so important, just take a look at the recent financial crisis. It has shown us that macroeconomics is more complex and more unpredictable than our economics textbooks would have us believe. Restricting government’s scope as the precondition of a “freely” functioning market is not enough to make the market provide effectively and justly for all. As the Census Bureau recently reported, even though GDP has grown, 2011 saw huge income gains for the top 5 percent of income distribution, declines for the middle, and stagnation at the bottom. Evidently, the market alone cannot allocate resources in a way that a just democracy demands, nor can it be relied upon to stably ensure the wellbeing of our most vulnerable.

But this is the problem with the Romney-Ryan ideology: it completely misunderstands what a just democracy demands. As Jeff Weintraub puts it, the democratic ideal requires active participation in collective decision-making, carried out within a framework of fundamental solidarity and equality. The Romney-Ryan ideology severely jeopardizes this ideal. How can democracy be fully realized if 47 percent of citizens are viewed exclusively as rapacious moochers and not as fundamental equals in a shared political community? How can self-governance be possible when we fail to guarantee a fundamental baseline for all and let market-generated inequalities distort political equality?

The fundamental equality democracy requires cannot be satisfied by a handful of political rights (not that these mean much anyway given voter suppression efforts). Rather, government must also guarantee what T.H. Marshall would refer to as the social elements of citizenship: equal access to basic essentials that relieve people from the constant struggle for survival and thus provide them with the time and energy to participate in political society as engaged citizens. These basic essentials are not simply an assortment of handouts for the destitute, but are universal and based on generally shared rights of citizenship (the 96 percent know what I’m talking about). Ensuring such a baseline enables us to do away with the artificial distinctions of makers or takers, and instead binds us in a community of mutual sacrifice and success. 

Guaranteeing these social elements of citizenship also entails containing the market and money’s influence so that a person’s life chances and engagement with democracy are not exclusively determined by market position. It is therefore important to have non-market institutions, such as government, direct the market in order to uphold the common good and redress market-generated inequalities. This does not simply mean redistribution policies that tax the rich and give to the poor – after the fact mop-ups via social spending are not enough to make up for the disempowering processes that lead to market-generated inequalities in the first place. Rather, we must also focus on predistribution, i.e. the way in which the market distributes its rewards to begin with (such as regulations that protect consumers and empower workers).

The concept of government as steward of the common good recasts its role in society, seeing it less as a third entity that runs alongside the market economy and the private household but more as a force in the service of the common good that is prior to both and directive of each. Government should act as the framework that both enables and is subject to democratic decision-making in society. It should ensure all people have the minimum they need to participate and engage as citizens and its fundamental direction should be shaped by public voice and societal goals that are collectively and consciously decided.  

Ryan lauds choice, competition, and self-sufficiency as the pillars of his social safety net, implying that marketization will enhance liberty as well as efficiency. However, these words are pure rhetoric and pretense. By putting the market in charge of the common good, he would fundamentally transform basic welfare goods, which are shared in common by all citizens, into commodities, which are bought by individual consumers in a volatile marketplace. While the ethos of social insurance is “we are all in this together, rain or shine,” marketization says to the citizen “here’s some money, you’re on your own.” The Romney-Ryan ideology not only severely undermines one of the most important pillars of government, but also bars those subsets of the population who are reliant on government benefits from the democratic community. 

Elizabeth Stokes is a Working Group Fellow for the Roosevelt Institute | Campus Network's national initiative, Government by and for Millennial America, and a senior at the University of Pennsylvania.

 

Teamwork image via Shutterstock.com.

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Romney's Tax Plan is Another Shot Fired in the Generational War

Oct 3, 2012Mark Schmitt

Romney's new cap on tax deductions, like his other policies, would transfer wealth to the wealthy and hit the young while shielding the elderly.

Romney's new cap on tax deductions, like his other policies, would transfer wealth to the wealthy and hit the young while shielding the elderly.

On Tuesday, Mitt Romney hinted at a key detail about his mysterious tax reform proposal. While he had previously suggested that he might eliminate some tax deductions or credits to pay for his proposal to reduce rates by one-fifth, yesterday he suggested that he would instead cap each taxpayer's total deductions at $17,000. Some questions remain, such as whether he would include the exclusion for health insurance in the cap, whether it applies to single filers or married couples, or whether it would raise enough money to pay for his proposed cuts. (Probably not.) But assume that it's a cap on the value of the biggest deductions, such as the mortgage interest deduction and the deduction for state and local taxes.

Because Romney would keep the preference for capital gains and dividend income and lower the top rate, any proposal to eliminate major deductions would in effect be, exactly as the Obama campaign has argued, a tax increase for the middle class to pay for a tax cut for the rich. A cap would work differently. Since it would impact only those whose deductions total more than $17,000, it would affect only the fairly well-off – those whose mortgage interest, state and local taxes, out-of-pocket health expenses, and other deductions exceed $17,000. As Suzy Khimm points out at Wonkblog, that will mostly be wealthy people in high-tax jurisdictions – but even the purchaser of a $450,000 house in Washington, DC would pay $18,000 in mortgage interest at the beginning.

Yet the Romney proposal as a whole, with capital gains still protected, would nonetheless redistribute income from the merely well-off to the very, very rich. To see what I mean, let's look at Mitt Romney's own tax return for 2011: Romney's deductions total $4,519,140 – a lot of money. At his average tax rate of 14 percent, deductions saved him $632,679. A cap would take away all but about $2,000 of that $632,679.

But look at what the capital gains preference does for him: Romney took home $12,573,249 in capital gains in 2011. (I've left out dividends, just to keep it simple.) At 15 percent, that's about $1,885,950 of his taxes. But if he paid the same rate as on ordinary income, 35 percent, he would pay about $4.4 million. So the capital gains preference saved him $2.5 million, while deductions saved him only about $632,000.

I'm just using Romney as an example here, partly because he's a very rich person whose tax return I happen to have. But a well-off family, earning maybe $200,000 a year in ordinary income with a $600,000 house, is already paying a much higher rate than the Romneys of the world and would face a significant increase.

There's one more thing about this proposal that hasn't really been mentioned: It would be a giant intergenerational transfer from young to old. Just as Paul Ryan's Medicare proposal creates a generational divide between those currently under 55 (who have spent much of their working lives in a stagnant economy) and those who are older and whose benefits would be protected, capping deductions has a similar generational effect. Why? Because younger people benefit disproportionately from the mortgage interest tax deduction and older people benefit from preferential rates on capital gains and dividends.

The mortgage interest deduction is worth much more in the early life of a mortgage, when most of each monthly payment is interest, than later, when it becomes mostly principal. And the deduction has no value for people who have paid off their homes or paid mostly in cash from the sale of an old home. Finally, older homeowners are more likely to have purchased before the real estate bubble of the 2000s. In a 2008 paper, the economists James Poterba and Todd Sinai examined the distribution of tax deductions by age and other categories. They found that homeowners between the ages of 25 and 35 got an average value from the mortgage interest deduction of $1,155, and homeowners between 35 and 50 got $1,598. But homeowners over 65 got only $149 on average from the deduction.

Who benefits from the preference for capital gains and dividends? Here's a chart from Paul Caron's TaxProf Blog

As the chart indicates, taxpayers over 65 are twice as likely to have capital gains or dividend income than those 45-55, and those preferred sources of income make up much more of their income than for younger groups – six times as much in the case of dividends. The Romney tax plan would protect this advantage.

While many older Americans live under great economic stress and poverty, there is a significant portion of them who benefited greatly from the economic prosperity of the post-War era, who had significant economic gains from their early investments in housing and in the stock market in the 1970s and 1980s, and who also benefit from programs such as Medicare and Social Security that provide them significant economic security. The younger generation (by which I mean those under 55) has not had the same advantages, and both Ryan's budget and Romney's tax plan would make it worse for them while protecting the wealthiest of the older generation.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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