WASHINGTON – The way to boost the U.S. economy and cut the ratio of federal debt to the nation’s output is to raise taxes on the rich, expand Social Security, extend federal jobless benefits to a full year and massively increase investment in infrastructure, the Economic Policy Institute says.
And at the end of all that in 2040, it adds, federal debt would be 54 percent of gross domestic product, not the present 74 percent – and less than debt proposed by right wingers.
The Peterson Foundation, a New York mostly business-oriented think tank, asked institute, long-respected for its policy analyses, to submit a debt and deficit-cutting plan. It also sought plans from the Center for American Progress – a progressive D.C. think tank – the right wing American Enterprise Institute and the center-right Bipartisan Policy Center. When it came to cutting the debt ratio, EPI finished second to the center’s 46 percent. Key EPI proposals:
- Establishing a public health plan in the Affordable Care Act’s health insurance exchanges to “increase competitive pressures on other health insurers.” In so many words, it’s the “public option” Congress rejected when it passed the ACA.
- Using the federal government’s buying power in the medical market to contain costs. EPI says the feds “could negotiate lower Medicare Part D drug prices, encourage bundling payments, accelerate generic drug availability, and finance investments in health information technology and research into comparative effectiveness.”
- Using the ACA’s Independent Payment Advisory Board to control private sector health care cost hikes, not just the half of all medical spending that federal programs pay for.
- Extend and expand Social Security by lifting the cap on taxable earnings, so payroll tax levies cover 90 percent of earnings. Sen. Bernie Sanders, Ind.-Vt., who seeks the Democratic presidential nomination, is the leading advocate of ending the cap. EPI also wants to expand Social Security coverage to newly hired state and local government workers.
- Adopt the Congressional Progressive Caucus’ targeted defense budget cuts, rather than the across-the-board slashes from the GOP-passed sequester or the 2013 Budget Control Act. EPI would repeal both those laws.
- Finance “a permanent increase in public investments of almost $400 billion in 2017, which is then indexed to GDP growth in subsequent years” and fully fund the highway trust fund by raising the federal gas tax. The 18.3 cents/gallon tax has been unchanged since 1993.
Restore the federal food stamp benefits that congressional Republicans eliminated from the 2014 farm bill, “to help feed low-income families and children.”
Expand the Earned Income Tax Credit to childless workers. “The EITC encourages work and reduces poverty,” EPI says. “Additionally, the 2009 expansions of the child tax credit and the EITC, which expire in 2017, are made permanent.”
Create a permanent federally funded 52-week jobless benefits program, as President Barack Obama (D) proposed in his budget for the fiscal year that begins Oct. 1. Jobless workers now get federal benefits – sometimes – only when their state benefits end and then only in high-unemployment states.
State benefits have traditionally been 26 weeks, but Republican-run state governments have cut that time to as little as 20 weeks, and kept benefits very low, especially in the South. And the congressional GOP killed extended federal jobless benefits.
- Kill the Bush tax cuts on the rich and add two new brackets for the richest: 43 percent on income between $2 million and $10 million, and 47 percent on income over $10 million. And EPI, after a 35 percent exclusion, would tax capital gains at the same rates. Rep. Jan Schakowsky, D-Ill., has offered the tax rate hike bill in the House.
- Kill fossil fuel corporate tax subsidies and deferral of taxes on foreign income of U.S. firms. EPI would also “limit the ability of U.S. corporations to expatriate for tax purposes.” And “debt financing of corporate investment is put on a more equal footing with equity financing by indexing the corporate interest deduction to inflation.” That discourages stock speculation.
- Dump tax expenditures-“loopholes”-because they’re ineffective or skewed towards the rich. EPI would cap benefits from itemized deductions at 28 percent, phase out the home mortgage interest deduction over 15 years and kill the deduction for state and local taxes. “The charitable contributions deduction is limited to donations that exceed 2 percent of adjusted gross income,” EPI recommends. And instead of eliminating the estate tax, EPI would cut the tax exemption for estates in half, away from the first $5.4 million down to $2.5 million.
- Besides increasing the gas tax – to pay for highways, buses and subways – EPI would increase or impose “sin taxes,” on alcohol, guns and ammo, carbon emissions (with a rebate for the poor) and sweet sodas. “To reduce systemic financial risk, we adopt a leverage tax on ‘too big to fail’ banks,” EPI adds. It did not proposal a financial transactions tax, a top cause, and revenue-raiser, pushed by National Nurses United.
But even all that won’t fully end the red ink, EPI says. What the country really needs, it adds, is a full-employment policy, too.
“The current austerity measures designed to reduce budget deficits have failed to improve the long-term budget outlook, increase economic growth, boost living standards, or provide security for current and future generations. To be successful, deficit reduction must be paired with policies that push the labor market back to full employment and that lay the foundation for long-run economic growth,” EPI plan authors Josh Bivens and Thomas Hungerford conclude.