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The Next Economy – An 8 Point Plan

The beauty of election season is that every citizen has an opinion and they get to voice it. Because we are a Democratic Republic, it’s usually up to the candidates running to propose very specific platforms for the voters to judge. But these are often thin on details – either because they are hard to pin down before they are fed into the complex process of making sausages, er, laws or because candidates are full of hooey.

Both are usually true. Promises are one thing, delivering quite another.

Barataria has taken the position that the economy is turning over, indeed that there is a new economy replacing the one that gradually failed. The turmoil is what has voters so angry as no one seems to be in charge. It’s also Barataria’s position that complaining without proposing a specific solution isn’t all that helpful, so here is the Barataria platform.

It leaves aside a lot to focus on one thing – turning over our economy into the next one. How do we build a dynamic system for everyone? Here are my immediate thoughts.

In many ways, this platform grows out of the discussion we had called “People’s Economics”, specifically the one last 9 December called “Work in the Next Economy.” The previous discussion, “The Long View” is also up if you want to see it. Pour yourself a drink and settle in because if you’re a fan you know I can go on a bit.

How does this translate into a platform? Here are my ideas.

Raise the Minimum Wage. Barataria has discussed this at length. The most important thing we can do is to put more money in the hands of working people, period. It’s remarkably easy to justify a $15 per hour minimum wage and this should be done. Momentum is building for this huge increase, which would directly affect about 40% of all workers and probably influence the pay of another 20% or more who need to be differentiated from low-skills employees. But this has to be done, probably phased in over a period of four years at 50 cents every three months.

Reduce Employee Overhead. It’s important to not just dump our problems on business, even with high profits today. But it remains very true that the cost of hiring people is way too high, and a program to lower this would offset much of the cost of a higher minimum wage. The goal is to “Tax Profits, not Labor”. As it stands now, an employee making the average wage of about $20 per hour earns $40k per year – but costs their employer about $56k per year with unemployment insurance, workman’s comp, FICA, and health care costs added in. Those same costs are an even higher percentage of the wages for people earning only $7.25 per hour. Moving some or most of this to a profits based tax would make it more affordable for companies to hire workers. How can this be done? I’d start with a commission – not a punt of the problem, but this will take a lot more study to do well.

Financial Overhaul. The Minneapolis Fed is working on a plan, and it’s probably best to start there. As Neel Kashkari has said, we can either tax high-risk banks, force them to carry more capital, or bust them up. Surely we can calculate the internal risk (more capital) and the externalized risk (an FDIC-like insurance system) into something that makes sense. We can also make it illegal to own Credit Default Swaps (CDS) in excess of the position of the underlying asset, which is to say ending the most casino-like characteristics of today’s financial world. The goal is to not have anyone subsidize pushing around money as a living and to not allow investing to become gambling. This says nothing about a push to end “Quarterly Capitalism”, which also needs to be fleshed out more – but is critical to create business world based on investment. We need a system that includes not just banks for re-insurers and any company that offers credit – reporting through a triumvirate of regulation that includes the Federal Reserve (at a reduced, mainly technical role), the Treasury Department, and a new Consumer Protection Bureau.

Simplify Corporate Taxes. Our top rate of 28% isn’t actually paid by anyone, given all the loopholes. Right now, we net about $342B from $2,149B in corporate profits – about 16%. We need to have a flat tax on profits that is very hard to get out of at 20%, perhaps exempting the first $100k or so for small businesses. That would raise about $100B per year in new revenue.

Define Business Income. Right now, corporations have at least two sets of accounting – one for tax reasons and another for their own requirements. Is a particular operation making money? Depends how you calculate it. By insisting on one standard for all reporting and internal consideration as well as taxation it would become impossible to shield money from taxes. The law would read that if there is any document anywhere, even internal, which reports a particular operation (say, the US arm of a multi-national) made more money than reported they will be assessed the same 20% tax rate on the difference with the same amount again as a penalty – and another hit of the same amount if it can be proven to be a deliberate attempt to hide money.

Stock Tax. It’s been years since we discussed this, but the idea still stands. A small transaction tax of 0.2% on all stock sales would kill most trading, now done in fractions of a second on average. It’s hard to tell how much such a tax would raise because of this, but a good estimate is $200B. This would be in lieu of higher corporate taxes, which is to say we would tax money manipulation more than ordinary profit

Defense Cuts. We still spend about $680B per year on defense, or $5,000 per household, which is ludicrous. The Pentagon must be audited and we can and must find $200B in savings. We can start with the overseas bases we still operate and work out from there. We’d still be the largest defense spender in the world by far and the strongest nation in the history of the world.

Infrastructure. With $500 in identified new taxes and savings, where would it be spent? Infrastructure pays us back many times over, and we have to start investing now. But over the long haul, nothing would transform the economy more than a 300 mph (500 kph) maglev train system not just for passengers but for standard TEU containers. The goal is to be able to get any size package anywhere in the nation overnight for a tiny amount of money. We can do it. This would put US manufacturers at a huge advantage over foreigners and revolutionize retail as it supports the move to online direct orders. Information moves at the speed of light, why not our packages? If this costs tens of Trillions of Dollars we can put together a federal contribution of $10T in 20 years at the rate proposed – with state and local money, plus a public-private partnership, we can make this happen.

Equity at its best is partnership.

Equity at its best is partnership.

With these 8 items the most important ways we can transform our economy are in place. Workers get a bigger share of the pie. There will be more money to be made making stuff than pushing money around. From there, the free market has room to operate and work its magic.

I left out education subsidies such as free college for one simple reason – I do not think it will be as transformative as these proposals given the amount of aid that the genuinely poor can find. Health care reform was left to reducing employee overhead, but I can’t think of any better way of making the case for a single payer system to those still unconvinced than to ask, “Why on earth are businesses on the hook for the health care tab?” Let’s ask that question as loudly as we can and see where it goes.

Is there more? Oh, yes. We have a lot of work to do. But these 8 items are what I consider to be the most important.  The links go back six years at times, but the case has been built, so if you have questions please follow the links.

25 thoughts on “The Next Economy – An 8 Point Plan

  1. Perhaps we do need defense cuts…but history sometimes history washes up on the shores of the US and I know that we will answer the call of the long twilight struggle, year in and year out, rejoicing in hope, patient in tribulation…

    • Investments in infrastructure are far more important than defense unless we are actually at war. We aren’t, and we spend far more than anyone else. I think it’s completely justified to divert this money back home, yes.

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  3. What, no campaign finance reform? How will anything change if we don’t get bribery out of the system?

    • I don’t see anything happening until we have a change on the Supreme Court. First things first. I picked battles that I think are winnable, even if some are a bit of a stretch.

  4. Not bad. But nothing on some of the other government reforms you’ve talked about or education. I would think a real focus on workers would have to have a big focus on education.

  5. Personal taxes are fine but corporate taxes are a mess. Your right that its all in the definition of income. Your plan may get around this but there is always a way around anything if you know how to read it.

      • Harry,

        You might actually contribute something if you would bother to discuss Erik’s ideas, rather than replying in cryptic non-sequiturs. However, that might require both thought and honesty and I perceive that may be a strain on your capacities.

  6. I’m generally in agreement with these 8 points, but agree with those wanting more emphasis on education and health care. Part of my thinking is that people are more likely to support changes that seem beneficial to them personally….

  7. Stock taxes would be an idea to slow down day trading. I think the reason why stock taxes always come up is for that reason alone. Many people are looking for small swings as day traders and it really can mess up the market. So people want to bring some stability to excess trading, personally I think this is one way to do that.

    • Yes, that was the original impetus – and it’s still a good idea. I think that 0.2% is not something that will hurt anyone but it will raise a LOT of money. Since we don’t seem to want to go back to corporate tax rates of the 1960s (when they were nearly double what they are today!) this would make a good substitute that also has a good side effect.

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