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Congress's summer job: The economy

Robert Reich

TEXT OF COMMENTARY

Bob Moon: The Labor Department releases its June unemployment tally tomorrow. Economists expect the jobless rate to fall slightly, from 5.5 percent down to 5.4, but job losses are also expected to continue.

So what accounts for the discrepancy? The number of teenagers looking for summer jobs.

Commentator and economist Robert Reich would like to suggest some summer work for Congress.


Robert Reich: The economy is failing, but it's now clear the Fed won't revive it. It figures if it cuts interest rates, global investors will move their money out of dollars, causing the dollar to drop further, meaning more inflation as the price of everything we buy from the rest of the world, including much of our oil, rises even faster.

Yet American consumers cannot stimulate the economy on their own because they don't have any money left. And exports can't make up the difference. So how to get back on track?

Blue Dog Democrats, Calvin Coolidge Republicans and Ross Perot Independents all must understand the critical importance of a fiscal stimulus right now. And it has to be on the right scale. Distributing those little stimulus checks last month was like dispensing aspirin for pneumonia: momentary relief for a whole system desperately sick.

The fastest and strongest stimulus would be a one-year exemption of the first $15,000 of income from payroll taxes, starting as soon as the bill is signed. Congress still has time to pass this before the session ends.

This should be followed soon after the next President is sworn in by major infrastructure spending based on a newly-formed capital budget. Expand public transportation, fix hundred-year-old sewer and water systems, rebuild levees, invest in green technologies. All this will get the economy moving and bring it into the 21st century.

But to keep the economy moving, the middle class will need to get back some of the buying power it's lost over the years as almost all of the benefits of growth have gone to the very wealthy. The surest way is through a middle-class tax cut financed by a tax increase on those at the top.

In other words, now that the Fed's hands are tied, we need a bold fiscal policy, a stimulus large enough to get the economy moving again and a progressive tax system large enough to keep it moving. The question is how low the economy will have to sink before there's political will to do this.


Moon: Robert Reich teaches public policy at the University of California at Berkeley.

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Your proposal to tax the wealthy fails to define "wealthy". Where I live, a dual-income professional couple whose income ranks in the top 1% nationwide is merely middle-class. How about defining "wealth" based on where you live and the relative costs associated with that location? Someone earning $100k/yr is below average in Silcon Valley, but would be considered rich in most other areas. Is taxing that person at a higher rate fair? I think not.

Regarding Mr. Reich's fiscal stimulus commentary: I loved the idea, what I found interesting is that the comments are from folks "who aren't in the real world" Mr. Reich I manage a credit union and daily see loan applications for loans to help with mortgages, rent ( where workers now don't earn enough in one pay check to make the rent payment) and these often aren't people who have cable and drive SUV's They are working people who just don't make enough and they aren't height enough on the bell shape curve, often, to make more. So real world. Yep we need just what you are proposing but we need leaders with the nerve and forward thinking to do it.

Rather than trying to extract money from the rich and give it as income tax relief - a policy that would run into huge evasion issues - it would be wiser to enact a corporate dividends paid deduction and collect the revenue on the shareholder side. That would create a huge incentive to move high value jobs to the U.S., which would give middle class employees enough market power to redistribute the wealth in an efficient manner. And the increased taxes on the well-to-do shareholders would be very easy to enforce. We have to get smarter about the ways we raise revenue.

Perhaps I'm naive, but what would be wrong with a flat tax of 10% across the board for everyone - rich, poor, and in between? No tax shelters, it treats everyone equally, increases revenue for the government, and everyone's happy. Who could complain?

As usual, Robert Reich shows his lack of experience in the real world, where the organization ceases to exist if it does not make a profit. His vision proposes a heavier tax burden on the "rich": not the 40% of households who pay no income tax, but the 20% who already pay over 70% of taxes. Those who take risks -- financial or other -- must share any reward disproportionately with those who don't. The "rich" include, for example, the men and women who work in the offshore industry, including commercial divers who are very well paid and tend to die young.

Too much spending got us into this mess in the first place. It is not going to get us out of it. It is obvious that you used to work for the government, because the only answer you can think of is more spending. How high does the government have to run up that credit card of theirs before you get the hint. More spending didn't help Roosevelt; after the war we went right back into the depression. And it won't help this time either.

Regarding Mr. Reich's fiscal stimulus commentary: Instead of keeping the progressive income tax system which can be argued is as unfair to the rich as it is to the poor, let's exchange it for a progressive consumption tax system. The more you consume the more you are taxed on each escalating unit of consumption. If the progression is aggressive and steep, the revenue will be sufficient. This system could also employ tax credits for investing. People who bought bond issues that funded infrastructure spending or stock issues in companies involved in crucial technologies such as nuclear energy or renewable energy or other global warming mitigating technologies could get a tax credit. The rich could either spend or employ their wealth as they saw fit. The working middle class would be encouraged to invest their expendable income, instead filling up their garages with Walmart junk. Nobody could be accused of getting a free lunch.

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