Smart Politics: How to Reduce Poverty and Invest in Workers and Families
1 and 5 children in America are living in poverty, and that shouldn’t be okay with any of us.
I know poverty isn’t a particularly sexy issue for politicians to talk about because poor people don’t vote to the extent that middle class people vote, but I want to push back on this perverse premise, because public service-ya know what politics is supposed to be-is built on human empathy. Our politics should actively reach out to the most vulnerable among us and work to provide them a better life. What is scary is how challenging it has become for Americans born in poverty to lift themselves out of poverty. That’s called social mobility-the ability for one to advance in economic class, and it’s been declining for some time. The forty-decade long expansion of income and wealth inequality has had direct causation with social immobility. The more unequal our society becomes, the harder it becomes for working people to lift themselves up and have a shot at the American Dream. We used subscribe to a basic bargain in this country that if you worked hard and played by the rules, you could get ahead and stay ahead. No longer is that the case, and it’s high time we get it back. And the first step is giving American workers a raise.
Since the Reagan era, wages have more or less flat-lined after inflation for the bottom 90% of Americans, while housing prices, property taxes, health care, and education costs have risen dramatically. The myth that raising wages causes hyperinflation is a scaremongering tactic, because let’s get real: keeping wages low hasn’t stopped inflation. Keeping the minimum wage well below the poverty line hasn’t stopped inflation. The only real way to combat inflation-other than raising interest rates-is by stimulating greater competition in markets. Giving Americans a raise isn’t just the moral thing to do; it’s good economic sense. Growth since the recession has been slow (though consistent nonetheless) because the purchasing power of the middle class is in decline. The cost of doing business is already quite low, but less and less people are able to purchase less and less goods and services. To fuel consumer demand and grow our economy, we need to remember that consumers are workers, and giving workers a raise is a pro-business policy. The question now is how we can design an economic agenda that seeks to lift up the bottom 90%, alleviate the barriers to social mobility, reverse inequality, and lift children and families out of poverty. Here are my thoughts:
1.) We need to create a 21st century, universal childcare allowance system, one in which nearly every parent receives a check from the government that phases out for those with higher-incomes. Right now, the United States has a child care tax credit. We’ve already indicated in our tax system that we want to encourage people to have children (since a lot our workforce is retiring), and that we will offer incentives to reproduce. My suggestion is that we double down on this idea, expand the tax credit, and make it fully refundable- essentially, a child care allowance. Child poverty is actually an enormous obstacle in the way of economic growth. One economic analysis of costs details effects including increased crime, decreased earnings in adulthood, and poorer health. The same analysis concludes that childhood poverty prevents roughly 4% GDP growth and in fiscal year 2016, cost the economy $700 billion. Reducing childhood poverty is an economic growth strategy and should be recognize as a federal priority that yields a more than worthy return on investment.
2.) Any childcare allowance program should be matched with progressive, pro-family policies such as a higher minimum wage, paid maternity/paternity leave, paid medical leave, paid vacation time, and means-tested subsidies for pre-school and higher education tuition. The burdensome costs families face with sending their children to school prevents them from being able to spend money on non-essential expenses. The non-essential expenses are products and services located in businesses. Businesses employ workers. Alleviating these essential costs parents pay, will increase their pocket money, which will in turn increase consumer demand, which will increase business profits, which will allow businesses to hire more people and raise wages. But beyond the Keynesian economics logic, guaranteeing children access to quality, affordable pre-school is a huge investment in the future workforce of America. 75%of brain development occurs before children are 3-years old. Don’t we want to build the smartest and most capable generation ever for our future? Studies have shown that children who have attended quality pre-schools perform significantly better by 3rd grade compared to those who haven’t. Children are literally our future, and it’s about time our policies’ reflect that.
3.) Rewrite the tax code to reward businesses who treat their workers well and punish those who don’t. The average American corporation pays 27.7%-only 0.5% above the global average-and reducing the fiscal burden on businesses is certainly an attractive concept, but it seems like the politicians in Washington’s ideas for tax reform are stale, regressive, and/or based on voodoo arithmetic. We ought to use the tax code as a means of creating incentives for businesses to do what makes good economic sense to create shared prosperity. In the 50’s, President Eisenhower theorized that having a high corporate tax rate (at 91%), but allowing companies to deduct new hires, new equipment, new locations, and product R&D, would incentivize companies to sink their profits back into their businesses and expand and pay a much lower tax rate. His theory worked, and the economy grew approximately 20% during his two terms. I think a revision of the tax code should embody what worked in the 50’s (a higher marginal rate with deductions that incentivize companies to expand) as well as a sliding scale that gives companies credits for paying their workers more and debits for when they pay them less. The CEO-Average Worker ratio in 1960 was 20:1. That was a time in which inequality was low and social mobility was high-well, for white people. Today, that ratio is 350:1. We should tie the tax rate a corporation pays directly to their CEO-average worker ratio. In fact, these companies that pay lower rates will ultimately bring in more revenue as their workers spend their increased earnings in their local economies. Taxes may be a means to collect revenue, but they are also a tool to encourage smart business policy, and these policies make it crystal clear that investing in workers yields a generous return on investment.
4.) Congressman Ro Khanna has a $1 trillion plan to revitalize middle-class purchasing power by enhancing the Earned Income Tax Credit to offer $6,000/ year for individuals and $12,000 for families. These reforms would double the maximum disbursement for families, and raise it tenfold for childless workers. The Earned Income Tax Credit, or EITC, is, essentially, a wage subsidy. Technology’s consumption of sustainable jobs with good wages is an existential threat to American workers who have already been dealt a sucker punch by the austerity-driven, union-crushing, supply-side, boo-hockey policies over the past forty years. Wage stagnation has had a brutal effect on working class families, and Congressman Khanna proposes our government should make amends for their suffering and reward their hard-work. His proposal would give a 20% raise to the bottom 20% of households in the income distribution, to compensate them for the stagnancy of wages since 1979. Besides being the moral thing to do, it would be good for the economy as it would increase consumer demand. Over the past 70 years, corporate profits have become a larger and larger share of GDP, while the taxes collected from them have gotten smaller and smaller. The supply-side costs businesses encounter are not the obstacle to economic growth that the Administration and Congressional Republicans would have you believe.
5.) Quality education is better when teachers are more motivated (pay higher pay), when schools offer more opportunity (more courses, more resources, more extra-curricular activities, etc.), and when teachers are able to spend more of their time actually teaching the coursework (as opposed to state-sanctioned standardized tests). The factors that determine whether a student receives a quality education are largely determined by the amount of money a school receives. Public schools in this country are funded by property taxes which creates an environment in which students from higher-income neighborhoods have higher quality public schools, while students from lower-income neighborhoods have poorer quality schools. Our public school system is ground zero for inequality. My solution, to quantitative inequality, is to lower property taxes and raise excise or sales taxes, so that public school quality no longer depends on the neighborhood your family lives in.
The bottom line is that investing in children and families is morally and economically sound policy, and if we give workers a raise, we will all rise together.