Although most of the problems in today's society are complicated and controversial, there is one fix that should be undertaken nationwide: updating and refitting public buildings. Furthermore, this is a solution that can be done unilaterally by individual states, counties, or municipalities, because we all know the federal government is unlikely to get it done. Currently, public buildings are bleeding tax dollars away because of inefficient heating or cooling, improper insulation, outdated electrical and plumbing systems, and a host of other deficiencies. Simply put, refitting public buildings with state of the art architecture and infrastructure will save millions of dollars over the long term, create thousands of jobs in the short term, and reduce greenhouse gas emissions. This is a proposal everyone should be on board with, regardless of political bent.
Because of the large deficit and debt, spending has become a dirty word in Washington, unless it is accompanied by "cuts." This is the primary impediment to smart reforms that would make government drastically more efficient. As any businessman knows, you've got to spend money to make money, and public policy is no different. Were the government run like a business, it would incur short term debts (especially considering the favorable borrowing rate) in order to trim costs in the long term. In fact, this is exactly what occurred with the stimulus packages passed by Bush and Obama. The stimulus bills incurred short term debts and averted a deep depression, according to the non-partisan Congressional Budget Office. Therefore, it is logical to spend again in order to avert the second recession that is predicted to occur after the fiscal cliff.
Nevertheless, a large stimulus is not on the table, nor is it likely to make it through Washington's gridlock. The $50 billion dollar stimulus that Obama included in his latest proposal to Boehner and the GOP is not being taken seriously by conservatives, who view it as an overreaching bargaining chip rather than a pragmatic solution to underemployment. The stimulus I am proposing is even more modest, pays for itself within a few years, and creates jobs immediately.
There are thousands of public buildings across the nation, so in order to simplify the discussion, I'll only discuss hard numbers with respect to public schools. There are, of course, many things that could be done to improve the efficiency of all public buildings, but schools are the hearts of their communities and are the best place to start. The utility savings can be passed directly on to the students, whose schools are woefully underfunded, without sacrificing a dollar in educational spending.
First, simply bringing in engineers to public schools to analyze waste and suggest efficiency reforms can save thousands of dollars annually. The process is known as commissioning, which brings in private contractors to assess the school's energy use. For the average public school, commissioning saves $14,000 annually, with an initial cost ranging from $5,000 to $40,000, depending on the conditions of the school. Poorly constructed schools have a higher commissioning cost, and would likely lead to higher annual energy savings. Even assuming high initial cost and low average savings, the cost of commissioning is fully paid off in 3-4 years.
The previous example also stimulates the economy, by creating good, high-paying jobs that did not exist before. The next example is quite obvious, and does not require much of an initial investment from the schools: change your lightbulbs. Changing outdated incandescent lights to modern fluorescent lights saves thousands of dollars, at an average rate of $20 per lamp, per year. At that rate, the initial investment is paid back in 1-3 years.
Other quick and easy solutions include adding weather stripping to windows and doors, adding a second pane to windows to reduce energy loss, and painting the roofs of schools a lighter, more reflective color to reflect sunlight and reduce the need for cooling. Repainting the roofs of schools saves, on average, 15-20% of a school's cooling costs for the year. These last three suggestions can be done during routine maintenance. For example, if a window breaks or is scheduled to be replaced, insuring that it is replaced with a more energy efficient window is an easy way to slowly phase in the savings, without much of an initial investment. Similarly, if the roof is old and needs repairs or replacement, do so with reflective paint. The savings on the cooling bill will pay for the paint within the next few years.
I see no reason why we should not immediately and aggressively institute these reforms. The costs are so low compared to the major drivers of the deficit and debt, yet the benefits are very high with respect to those costs. Furthermore, these benefits compound upon themselves as time goes by: every year that passes causes inefficient construction to become more inefficient, thereby wasting more and more money. The sooner we act, the greater savings we gain. Refitting public schools creates jobs in the construction sector, which is still struggling after the housing bubble collapsed, as well as creates architecture and engineering jobs. The savings accrue nearly instantaneously, and the environmental impact of reducing our carbon footprint cannot be overstated. Students will attend schools that are properly heated and ventilated, and can take pride in knowing that their school is part of the solution, and not the problem, when it comes to global warming. Refitting schools is something that every school district should do - it saves them money - regardless of what occurs at the county, state, or federal level. It's a no-brainer, and the kind of common sense solution we really need.
Wednesday, December 12, 2012
Tuesday, December 11, 2012
Taxes and Income Inequality
In today's political discourse, it is rare that we find areas of widespread agreement. Surprisingly, one thing most people agree on is an economic issue: economic growth is the best way to reduce the debt and deficit. Frustratingly, this consensus in goals has not led to any consensus in policy, mostly because politicians are too busy arguing whether or not wealthy people deserve 65 or merely 60% of their annual income. I cannot, for the life of me, understand why keeping top marginal tax rates low is still an issue, much less a priority, in the tough economic times that we are in. If the government has a budget shortfall to the point where it can no longer operate, then it is time to raise taxes. The argument that raising taxes on "job creators" will tank the economy does not hold water. Here are two graphics to illustrate my point:
The first is simple: a chart that maps national GDP growth and top marginal tax rates from 1946 until 2011. Simply put, there is no correlation between tax rates and GDP growth. The GDP (marked in red) bounces up and down irrespective of the marginal tax rate. When taxes were at their peak in the 1950's, economic activity was more robust than it is today. The argument that raising taxes on the wealthy will destroy the economy is unhistorical. Another way to put that: it's a flat out lie.
The second chart is a little more intimidating, but it isn't too bad. It maps top marginal tax rates (MTR) against the portion of income that the richest 1% earn annually. The black lines represent the share of annual income held by the richest 1% and the red lines show the top marginal tax rate. The two lines are in inverse correlation to each other: when tax rates are high, income inequality is low. When tax rates are low, as they were in the antebellum period before WWII and as they are now, income inequality skyrockets.
These two graphs give historical evidence that we should, just like was done in "traditional America," raise tax rates on the wealthy. When tax codes were more progressive, prior to the Reagan years, economic inequality was low, but economic activity was booming. As the tax code was reformed to become more regressive, the economy continued to grow, but fewer and fewer dollars trickled down to the masses.
How bad is it now? Income inequality is still burgeoning, despite the economic slowdown. This chart shows how income distribution changed from 2010-2011, illustrating that the richest among us continue to get richer, while the rest of the population sees their incomes decline. To put a historical perspective on it, this chart shows the annual incomes of families, broken down into quintiles and the top 5%. Things have steadily gotten worse, and the gap between rich and poor is still growing.
This data suggests that trickle-down economics do not work for the people. Trickle-down economics only serves Wall Street fatcats who are adept at making money out of money. It is anti-democratic to argue that the best possible economic system is one in which we entrust our homes and savings to a set of oligarchs; furthermore, it is not supported by facts or history. Since the recession, corporations have frequently posted record profits and passed on the gains to their executives (presumably for doing such a good job at blowing up the economy and cutting jobs). If raising taxes on the wealthy will make these greedy bastards quit working as they claim, then that is all the more reason to do so. They have been wrong in their economic predictions in the past, and the smart money says that they will be wrong again. Raise taxes. It's the right thing to do.
The first is simple: a chart that maps national GDP growth and top marginal tax rates from 1946 until 2011. Simply put, there is no correlation between tax rates and GDP growth. The GDP (marked in red) bounces up and down irrespective of the marginal tax rate. When taxes were at their peak in the 1950's, economic activity was more robust than it is today. The argument that raising taxes on the wealthy will destroy the economy is unhistorical. Another way to put that: it's a flat out lie.
The second chart is a little more intimidating, but it isn't too bad. It maps top marginal tax rates (MTR) against the portion of income that the richest 1% earn annually. The black lines represent the share of annual income held by the richest 1% and the red lines show the top marginal tax rate. The two lines are in inverse correlation to each other: when tax rates are high, income inequality is low. When tax rates are low, as they were in the antebellum period before WWII and as they are now, income inequality skyrockets.
These two graphs give historical evidence that we should, just like was done in "traditional America," raise tax rates on the wealthy. When tax codes were more progressive, prior to the Reagan years, economic inequality was low, but economic activity was booming. As the tax code was reformed to become more regressive, the economy continued to grow, but fewer and fewer dollars trickled down to the masses.
How bad is it now? Income inequality is still burgeoning, despite the economic slowdown. This chart shows how income distribution changed from 2010-2011, illustrating that the richest among us continue to get richer, while the rest of the population sees their incomes decline. To put a historical perspective on it, this chart shows the annual incomes of families, broken down into quintiles and the top 5%. Things have steadily gotten worse, and the gap between rich and poor is still growing.
This data suggests that trickle-down economics do not work for the people. Trickle-down economics only serves Wall Street fatcats who are adept at making money out of money. It is anti-democratic to argue that the best possible economic system is one in which we entrust our homes and savings to a set of oligarchs; furthermore, it is not supported by facts or history. Since the recession, corporations have frequently posted record profits and passed on the gains to their executives (presumably for doing such a good job at blowing up the economy and cutting jobs). If raising taxes on the wealthy will make these greedy bastards quit working as they claim, then that is all the more reason to do so. They have been wrong in their economic predictions in the past, and the smart money says that they will be wrong again. Raise taxes. It's the right thing to do.
Saturday, December 1, 2012
Balanced Deficit Reduction
The most crippling aspect of American politics is that policy proposals are treated as negotiations rather than as rational plans for a road forward. For example, both political parties claim they are championing a "balanced" approach to deficit reduction because both have adopted mutually disagreeable policy concessions. This view neglects the fact that policy is not an "either-or" situation and that there is a multitude of other options on the table that are not even part of the discussion.
First off, cuts to Social Security should not even be part of the discussion. Although income tax rates have fallen to historic lows over the past few decades, for many middle and low income workers the payroll tax (which funds Social Security) has made up the difference in their tax burden. As a result of the increased payroll tax, Social Security is financially sound until 2033, even after factoring in the stagnant world economy and sluggish recovery. Social Security may make up a large portion of government spending, but it is not a driver of the deficit or the debt. The people have paid for this program, and it should not be cut. Deficit hawks who propose cuts to Social Security would turn it into a Ponzi scheme and rob future retirees of their benefits.
Therefore, if Republicans want to bargain with Social Security cuts, they must advance a rational position as to why slashing Social Security spending would be good for the country as a whole. If the program is paid for, it is not a driver of long term debt, and should not be on the negotiating table. Democrats should ignore this red herring and hold strong to their positions. Abandoning an irrational policy proposal should not count as a concession; it is simply what reasonable lawmakers should do. It is what they are elected to do.
On the other side, raising the top marginal tax rate is something that Republican lawmakers will not accept. The idea that the rich are the job creators and the drivers of our economy is an idea that I detest and thoroughly disagree with. Nevertheless, it is a foundational tenet of conservative economics, and is not a position they will retreat from. Grover Norquist's despicable pledge and the reelection hopes of Republican Congressmen further complicate the issue. The fact of the matter is that Republicans will not retreat from a tax policy that favors the wealthy, because they fervently believe that such a tax policy is best for all Americans.
And this is where the talking heads and politicians are stuck. Democrats will not give up cuts to Social Security, and Republicans will not give up historically low tax rates for high-income individuals. Because of the myopic view that politics is a dichotomy, politicians claim that a balanced approach must involve concessions on both of those points. That view is consigning ourselves to a policy that no person will fully support, and that will likely fail.
There are other options on the table that both conservatives and liberals should agree upon that would lead us out of the financial crisis, but they are not being discussed. For instance, the tax code is horribly complicated and biased toward special interest groups and lobbyists. We now have a bipartisan consensus that removing loopholes and simplifying the tax code would be good for the country, and in the process could raise revenues. Opt for tax reform rather than raising the tax rates. Although most liberals would prefer the latter approach, political reality makes that move impossible. So take the next best thing and remove the many tax breaks that only the wealthy can enjoy, like carried interest, off-shore hiring incentives, and tax havens like the Cayman islands and Delaware. (Many large corporations claim their center of operation is in Delaware because of the preferential tax code there, even though their stated address is most often only a PO box. This policy robs every other state of valuable tax revenue and is just plain stupid. Corporations should pay the taxes of the state in which they operate, not where they collect their mail.)
As for ways to cut spending, there are many. First, prison reform would save billions of dollars every year. Literally billions. Currently there is a major push, especially in the south, to privatize prisons, which leads to worse conditions for prisoners and higher costs for taxpayers. Imprisonment is not a profitable enterprise, and should not be subject to free market pressures. It is immoral to make money off of another's incarceration; doing so is simply modern slavery. America is the most incarcerated country in the world, home to only 5% of the world's population, but 25% of its prisoners. That does not sound like the "land of the free" to me.
A second, related strategy would be to end the war on drugs. Federal law currently classifies marijuana as a schedule 1 drug, which lumps it in with meth and heroin. When questioned on whether marijuana is as dangerous as other schedule 1 drugs, the DEA chief could only respond with the line "We believe that all illegal drugs are dangerous." This is stupid, and leads to hundreds of thousands of drug arrests a year - destroying the future employment chances of many otherwise-successful individuals. Many employers will not hire a felon, regardless of how qualified he or she may be. The fact of the matter is that marijuana is not a dangerous substance, has medical benefits, and is not a gateway drug. Legalization (or at least decriminalization) would save billions of dollars a year in law enforcement costs. It would also help to curb the power of Mexican drug cartels, because marijuana could be purchased through safer, legal channels. Legalization also creates another taxable commodity, rather than leaving all of the profit in the black market. The reality is that people will smoke pot regardless of its legal status, so failing to tax it is just leaving money on the table. I see no benefit in marijuana prohibition, and I see great gains in its legalization and taxation.
Another avenue to save money is to reduce America's imperial footprint abroad. We have over 150 active military bases worldwide, while no foreign country boasts such a privilege inside our borders. This costs taxpayers billions of dollars annually in operational costs and does not make us any safer. We can begin the process of closing these bases and finally realize that the Cold War ended 20 years ago. It's time to come home, and start some nation building in the USA.
There are many other proposals that I have read that do not involve raising marginal tax rates or deep cuts to entitlement programs, but the conversation is stuck on that one point. What needs to occur is public pressure to change the discussion, because both sides have dug their heels in so far on this particular issue that no progress can be made. Take the modest concession of tax reform and run with it, then cut federal spending in ways that do not impact the elderly, the disabled, the poor, or the infirm. To me, prison and drug reform is a no-brainer that saves millions of dollars and keeps families and communities more stable. Similarly, reducing the imperial presence of America abroad reduces our negative image and saves billions of dollars. It is hard to characterize America as the "Great Satan" if we turn our sights inward and work to build a better country. There is perhaps no move that would improve homeland security so much as bringing the troops home - and there is a lot of nation building to be done stateside. Let's get out of this ridiculous back and forth on tax rates and start discussing a path forward. The tax code isn't everything, and there is a lot of other work to be done.
First off, cuts to Social Security should not even be part of the discussion. Although income tax rates have fallen to historic lows over the past few decades, for many middle and low income workers the payroll tax (which funds Social Security) has made up the difference in their tax burden. As a result of the increased payroll tax, Social Security is financially sound until 2033, even after factoring in the stagnant world economy and sluggish recovery. Social Security may make up a large portion of government spending, but it is not a driver of the deficit or the debt. The people have paid for this program, and it should not be cut. Deficit hawks who propose cuts to Social Security would turn it into a Ponzi scheme and rob future retirees of their benefits.
Therefore, if Republicans want to bargain with Social Security cuts, they must advance a rational position as to why slashing Social Security spending would be good for the country as a whole. If the program is paid for, it is not a driver of long term debt, and should not be on the negotiating table. Democrats should ignore this red herring and hold strong to their positions. Abandoning an irrational policy proposal should not count as a concession; it is simply what reasonable lawmakers should do. It is what they are elected to do.
On the other side, raising the top marginal tax rate is something that Republican lawmakers will not accept. The idea that the rich are the job creators and the drivers of our economy is an idea that I detest and thoroughly disagree with. Nevertheless, it is a foundational tenet of conservative economics, and is not a position they will retreat from. Grover Norquist's despicable pledge and the reelection hopes of Republican Congressmen further complicate the issue. The fact of the matter is that Republicans will not retreat from a tax policy that favors the wealthy, because they fervently believe that such a tax policy is best for all Americans.
And this is where the talking heads and politicians are stuck. Democrats will not give up cuts to Social Security, and Republicans will not give up historically low tax rates for high-income individuals. Because of the myopic view that politics is a dichotomy, politicians claim that a balanced approach must involve concessions on both of those points. That view is consigning ourselves to a policy that no person will fully support, and that will likely fail.
There are other options on the table that both conservatives and liberals should agree upon that would lead us out of the financial crisis, but they are not being discussed. For instance, the tax code is horribly complicated and biased toward special interest groups and lobbyists. We now have a bipartisan consensus that removing loopholes and simplifying the tax code would be good for the country, and in the process could raise revenues. Opt for tax reform rather than raising the tax rates. Although most liberals would prefer the latter approach, political reality makes that move impossible. So take the next best thing and remove the many tax breaks that only the wealthy can enjoy, like carried interest, off-shore hiring incentives, and tax havens like the Cayman islands and Delaware. (Many large corporations claim their center of operation is in Delaware because of the preferential tax code there, even though their stated address is most often only a PO box. This policy robs every other state of valuable tax revenue and is just plain stupid. Corporations should pay the taxes of the state in which they operate, not where they collect their mail.)
As for ways to cut spending, there are many. First, prison reform would save billions of dollars every year. Literally billions. Currently there is a major push, especially in the south, to privatize prisons, which leads to worse conditions for prisoners and higher costs for taxpayers. Imprisonment is not a profitable enterprise, and should not be subject to free market pressures. It is immoral to make money off of another's incarceration; doing so is simply modern slavery. America is the most incarcerated country in the world, home to only 5% of the world's population, but 25% of its prisoners. That does not sound like the "land of the free" to me.
A second, related strategy would be to end the war on drugs. Federal law currently classifies marijuana as a schedule 1 drug, which lumps it in with meth and heroin. When questioned on whether marijuana is as dangerous as other schedule 1 drugs, the DEA chief could only respond with the line "We believe that all illegal drugs are dangerous." This is stupid, and leads to hundreds of thousands of drug arrests a year - destroying the future employment chances of many otherwise-successful individuals. Many employers will not hire a felon, regardless of how qualified he or she may be. The fact of the matter is that marijuana is not a dangerous substance, has medical benefits, and is not a gateway drug. Legalization (or at least decriminalization) would save billions of dollars a year in law enforcement costs. It would also help to curb the power of Mexican drug cartels, because marijuana could be purchased through safer, legal channels. Legalization also creates another taxable commodity, rather than leaving all of the profit in the black market. The reality is that people will smoke pot regardless of its legal status, so failing to tax it is just leaving money on the table. I see no benefit in marijuana prohibition, and I see great gains in its legalization and taxation.
Another avenue to save money is to reduce America's imperial footprint abroad. We have over 150 active military bases worldwide, while no foreign country boasts such a privilege inside our borders. This costs taxpayers billions of dollars annually in operational costs and does not make us any safer. We can begin the process of closing these bases and finally realize that the Cold War ended 20 years ago. It's time to come home, and start some nation building in the USA.
There are many other proposals that I have read that do not involve raising marginal tax rates or deep cuts to entitlement programs, but the conversation is stuck on that one point. What needs to occur is public pressure to change the discussion, because both sides have dug their heels in so far on this particular issue that no progress can be made. Take the modest concession of tax reform and run with it, then cut federal spending in ways that do not impact the elderly, the disabled, the poor, or the infirm. To me, prison and drug reform is a no-brainer that saves millions of dollars and keeps families and communities more stable. Similarly, reducing the imperial presence of America abroad reduces our negative image and saves billions of dollars. It is hard to characterize America as the "Great Satan" if we turn our sights inward and work to build a better country. There is perhaps no move that would improve homeland security so much as bringing the troops home - and there is a lot of nation building to be done stateside. Let's get out of this ridiculous back and forth on tax rates and start discussing a path forward. The tax code isn't everything, and there is a lot of other work to be done.
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