Five Facts That Put America To Shame

PAUL BUCHHEIT FOR BUZZFLASH AT TRUTHOUT

“Give me your tired, your poor, your huddled masses…I lift my lamp beside the golden door!” These words, from poet Emma Lazarus, were inscribed on the Statue of Liberty over 100 years ago. Today the golden door has a lock on it, paid for with record profits from the health care, education and financial industries.

1. We’re Near the Bottom of the Developed World in Children’s Health and Safety

According to a 2007 The United Nations Children’s Fund (UNICEF) report, the US ranked last among 21 Organisation for Economic Co-operation and Development (OECD) nations in an assessment of child health and safety. The assessment measured infant mortality, immunization, and death from accidents and injuries.

A related 2009 OECD study generally agreed, placing the US 24th out of 30 OECD countries for children’s health and safety. It also showed the devastating effects of inequality in our country. Despite having the second-highest average income for children among the 30 OECD countries, the US ranked 27th out of 30 for child poverty (percentage of children living in households that are below 50% of the median income).

2. We’ve Betrayed the Young People Who Were Advised to Stay in School

Over 40% of recent college graduates are living with their parents, dealing with government loans that average $27,200. The unemployment rate for young people is about 50%. More than 350,000 Americans with advanced degrees applied for food stamps in 2010.

As Washington lobbyists endeavor to kill a proposed bill to reduce the interest rates on student debt, federal loans remain readily available, and so colleges go right on increasing their tuition.

Meanwhile, corporations hold $2 trillion in cash while looking for investments and employees in foreign countries, and American students are forced to accept menial positions. Yet, delusions persist about our new generation of would-be workers. Conservatives are all bubbly about today’s young entrepreneurs creating their own jobs – jobs that “don’t yet exist.”

3. The Main Source of Middle-Class Wealth Has Been Largely Wiped Out

American homeowners owe almost as much as the students, with $700 billion of debt over and above the value of their homes.

This removes the only source of wealth for middle America, especially for blacks and Hispanics. Remarkably, for every dollar of non-home wealth owned by white families, people of color have only one cent.

So when minority families were specifically targeted for high-risk, subprime loans that could be re-packaged and sold for a quick short-term profit, most of their assets were erased. Median wealth fell 66% for Hispanic households and 53% for black households. For whites the decline was 16%.

With a disturbing note of irony, Sanford Weill – the banker largely responsible for the reversal of the mortgage-protecting Glass-Steagall Act – was elected to the American Academy of Arts & Sciences for “extraordinary accomplishment and a call to serve.”

4. We Give Prison Sentences for Smoking Marijuana, but Not for Billion-Dollar Fraud

About half of our world-leading prison population is in jail for non-violent drug offenses. Americans have also been arrested for handing out free food in a park. Mothers in Ohio and Connecticut were jailed for enrolling their kids in out-of-district schools. As of 2003, in California there were 344 individuals serving sentences of 25 years or more for shoplifting as a third offense, in many cases after two non-violent offenses.

How does the market deal with this steady tide of petty crime? It strives for more. The new trend of private prisons is dependent on maintaining a sizable prison population to guarantee profits, with no incentive for rehabilitation.

As the number of inmates has surged, the people who devastated countless American lives “get out of jail free.” The savings and loan fraud cost the nation between $300 billion and $500 billion, about 100 times more than the total cost of burglaries in 2010. The financial system bailout has already cost the country $3 trillion. Goldman Sachs packaged bad debt, sold it under a different name, persuaded ratings services to label it AAA and then bet against their own financial creation by selling it short. Other firms accused of fraud and insider trading were Morgan Stanley, Bear Stearns, Bank of America, Countrywide Financial, and Wells Fargo. The New York Times reported in 2008 that the Justice Department had postponed the bribery or fraud prosecutions of over 50 corporations, choosing instead to enter into agreements involving fines and “monitoring” periods.

5. You Can Have Health Care, If You Pay for It

A recent Commonwealth Fund study compared US health care spending to 12 other OECD countries. The data shows that reducing our costs to the median level of spending among the OECD countries would save us $1.5 trillion a year, more than our entire deficit.

Unfortunately, insurance companies and pharmaceutical companies and hospital administrators won’t hear of it. There’s too much money to be made. Bypass surgery in the US costs two to three times more than in Great Britain, Canada, France, and Germany. Cataract surgery costs four times more.

That’s if you can pay for it. There are currently about 50 million uninsured Americans. At the other extreme are $2,400 oxymoronic penthouse hospital suites complete with butler and grand piano. Or, for those who don’t get out much, emergency rooms in the home, with private cell-phone access to “concierge doctors.”

Inequality in our country is so severe that 120,000 health care workers could have been hired with the salary paid to one man. That’s a $40,000 salary for 40 health care workers for every one of the 3,000 counties in the United States. Instead, $5 billion dollars went to one man who reportedly made his first big haul ($4 billion, in 2007) by conspiring with Goldman Sachs in the above-mentioned short sale subterfuge.

The result of ignoring the health needs of the greater population, according to a report in the Annual Review of Public Health, is that “the health rankings of the United States have declined substantially when compared with other nations.”
Conclusion

Privatization simply hasn’t worked for health care, mortgage banking, higher education, or prison management. There is little incentive for profit-motivated firms to invest in disadvantaged or underemployed Americans. That’s why taxes are necessary – to provide for the common good, and to return some of the gains from 60 years of productivity to the great majority of Americans who contributed to our growth. Unfortunately, the golden door on the Statue of Liberty seems to have an invisible hand holding it shut.

Paul Buchheit teaches Economic Inequality at DePaul University. He is the founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached at paul@UsAgainstGreed.org

A US Financial Transaction Tax: How Wall Street Can Pay for Its Mess

by Robert Pollin

Members of the National Nurses United union are campaigning for a small tax, or “Robin Hood” tax, that the financial sector would pay on commercial transactions of stocks and bonds. Proponents say the tax could generate billions of dollars — which could go toward debt reduction, social services and job-training programs — and has the potential to curb one of the causes of the financial crisis: speculative trading on Wall Street. Those opposed to the tax argue that additional costs could be damaging to markets, and that banks would pass the costs on to consumers in the form of higher commission rates and other fees.

In this essay, economist Robert Pollin, the co-director of the Political Economy Research Institute at UMass-Amherst, explains the financial transaction tax in greater detail, and shares why he thinks it’s the right idea.

* * *

As we continue to suffer the consequences of the 2008-2009 global financial crash caused by casino capitalism, one idea for bringing some measure of control over speculative financial practices that has gained worldwide support is to impose a tax on financial market transactions. This has been variously termed a financial transaction tax (FTT) and, more vividly, a “Make Wall Street Pay tax,” an “anti-speculation tax,” and a “Robin Hood tax.”

Over the past year, a movement to establish such a tax in the United States has been energized by the National Nurses Union under the theme “Heal America, Tax Wall Street.” The Occupy Wall Street movement has also strongly supported the idea as one of the few specific policy measures they are willing to endorse. Last November, Senator Tom Harkin and House Representative Peter DeFazio introduced a bill in the U.S. Congress for an FTT, although, as I discuss later, the tax rate they are proposing is far more modest than it needs to be. There is also strong support for an FTT throughout Europe as, among other things, one crucial new way for the European Union to raise public revenues and oppose the austerity agenda now engulfing the region. In Europe, this proposal is not only being supported by traditional progressive communities, but also by the Archbishop of Canterbury in the U.K., the Pope, and French President Nicolas Sarkozy, among others.

In its essentials, the idea of a financial market transaction tax is simple. It would mean that financial market traders would pay a small fee to the government every time they purchased any financial market instrument, including all stock, bond, options, futures, and swap trades. This would be the equivalent of sales taxes that Americans have long paid every time they buy an automobile, shirt, baseball glove, airline ticket, or pack of chewing gum, eat at a restaurant, or have their hair cut.

The financial transaction tax can be used to address two distinct but equally important concerns. First, the tax discourages financial market speculation because it raises the costs — and thus reduces the profit opportunities — for speculators. But assuming the tax rate is not set high enough to shut down financial market trading altogether, the tax can also be a large new source of government revenues. The tax rates could be adjusted higher or lower, depending on whether the primary aim is either to shrink speculative market trading or to raise revenues, or to try to hit a sweet spot that achieves both aims to some meaningful degree.

Experiences with FTTs

It is important to recognize that the proposals now being advanced in both the U.S. and Europe by no means represent exotic flights into uncharted policymaking territories. In fact, financial transaction taxes have been a commonly used and generally effective policy tool throughout the world. Under financial market conditions closely comparable to those in the U.S., stock trading in the United Kingdom is subject to a 0.5 percent tax. This U.K. tax raises about $6.5 billion per year in revenues. Roughly forty other countries are either now operating with some version of such a tax or have done so in the recent past.

Even the United States has long operated with a small transaction tax whose revenues, to this day, finance the operations of the Securities and Exchange Commission. Moreover, in the aftermath of the 1987 Wall Street crash, such a tax or similar measures were endorsed by then-House Speaker Jim Wright, a Democrat, as well as the Republican Treasury Secretary Nicholas Brady and the Director of the Office of Management and Budget Richard Darman, serving under President George H.W. Bush.

How a US FTT Could Work

For stocks, the buyer could be charged, for example, 0.5 percent of the sale price, which had been the amount suggested by former House Speaker Jim Wright when he proposed a bill in 1987, and is the current rate in the U.K. stock market (the buyer and seller could also split the total fee). The tax could then be scaled for bonds, options, futures, and other derivative instruments based on the 0.5 percent rate on stocks. For example, to reflect the fact that bonds, unlike stocks, have a limited amount of time until they mature, the tax rate could be 0.01 percent for every year to maturity of the bond. Thus, the rate would be 0.1 percent on a bond that matures in ten years and 0.5 percent — the same as with stocks — on a bond maturing in fifty years.

A trading tax of this size would have virtually no impact on anyone who bought an asset and did not promptly resell it for a quick profit. For example, if someone bought shares of stock at $50 and sold them ten years later at $100, this trading tax would be fifty cents per share (0.5 percent of $100) on a $50 capital gain (i.e., bought at $50, sold at $100).

On the other hand, a 0.5 percent tax would seriously reduce the profit prospects for short-term speculators, who now account for about 70 percent of all market activity. It is not uncommon for speculators to buy a stock or other financial asset, hold it for a day (or even hours), and then resell it for a small gain. If someone bought a share for $99 yesterday, then sold it for $100 today, the transaction would net a $1 capital gain, a good return on a one-day investment. But the tax in this case would again be fifty cents, wiping out half the earnings from the trade.

A financial transaction tax at a 0.5 percent rate on stocks and scaled appropriately for other instruments is not high enough, acting on its own, to adequately discourage speculation and channel credit to productive purposes. An FTT at this rate would be most effective as one measure among several others within a broader package of policies coming out of the 2010 Dodd-Frank financial regulatory law, assuming that Dodd-Frank is enforced seriously. Of course, one could use the tax to dramatically cut financial speculation. That would only entail raising the tax rate until the point where traders see little incentives to trade at all. But the aim of the tax should not be to shut off financial market trading altogether. For one thing, shutting down trading totally would mean that the tax revenues from trading would fall to zero. Also, to my knowledge, nobody has developed a coherent plan for operating today’s U.S. economy in the total absence of financial market trading.

The FTT has the unique feature that even if it is set too low to dampen speculation, the revenues generated from the tax would provide major fiscal benefits at a time when new sources of government revenue are badly needed. Working with 2009 figures, Dean Baker and I estimate that a 0.5 percent tax on stock trades and the sliding scale described earlier for bonds and derivatives would raise on the order of $350 billion if trading did not decline at all after the tax was imposed. By this estimate, even if trading declined by 50 percent as a result of the tax, the government would still raise $175 billion.

On its own, this level of revenue could cover about 15 percent of the entire U.S. federal deficit for 2012. These funds could also be used as a major new source of revenue for public investments in infrastructure and the green economy, and, as such, a major new engine of job creation. Crucially, the burden of the tax would fall most heavily on Wall Street speculators, who are almost entirely upper-income people. A U.S. FTT is thus fully in the spirit of the Occupy Wall Street movement.

Setting the Tax Rate High Enough to Matter

Of course, an FTT can neither generate large amounts of revenues nor discourage excessive speculative trading if the tax rate is set too low. The proposal now in the U.S. Congress by Senator Harkin and Rep. DeFazio would set the tax rate on all financial market trades — stocks, bonds, and all forms of derivatives — at 0.03 percent of the value of a trade. That is, the tax on a $100 trade would be three cents. This is one-seventeenth as large as the 0.5 percent tax that now operates on stock trading in the United Kingdom. Supporters of Harkin-DeFazio justify this low rate for the U.S. on the grounds that setting the rate higher — for example at 0.5 percent — could render financial market trading prohibitively expensive. Revenues generated by the 0.5 percent tax could then end up lower than at the 0.03 percent rate, since trading volume would fall excessively.

However, James Heintz and I recently examined a wide range of evidence on financial market trading patterns in the U.S. and elsewhere. We found that there is no scenario within a reasonable range of assumptions about market activities in which a 0.03 percent FTT will end up generating more tax revenues than a 0.5 percent tax. Rather, considering the full range of alternatives, we found that a 0.5 percent tax will produce between three and seventeen times more revenue than a 0.03 percent tax.

Beyond such specific issues, the major challenges for successfully implementing an FTT in the U.S. are not technical but political. Predictably, the Wall Street titans are vehemently opposed. Despite having been the main culprits causing the 2008-2009 global financial meltdown, and despite having been rescued from the consequences of their excesses through a U.S. taxpayer-funded bailout, Wall Street continues to exercise tremendous political power, in both the Obama administration and among Republicans. The FTT will therefore not possibly become law unless a large mobilization of political progressives follow the example of the National Nurses Union to fight hard to support it. Implementing the FTT would be one important tool for forcing these high-rollers to pay for cleaning up the mess they created. More broadly, the financial transaction tax can make major positive contributions toward forcing the financial markets away from the logic of the casino, thereby reordering the market’s priorities on behalf of long-term productive investment sand job creation.

 

Ezra Klein on the Re-Bone

“We shouldn’t dread the debt limit,” said Speaker John Boehner at the Peter G. Peterson Fiscal Summit. “We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction.”

These comments have been the occasion for much wailing and gnashing of teeth, as if anyone, anywhere, believed that the Republicans’ 2011 debt-ceiling antics were some sort of one-off. But Boehner was clear on Tuesday. “I will again insist on my simple principle of cuts and reforms greater than the debt limit increase,” he said.

Of course he will. For one thing, it worked well for him in 2011. Republicans got more than $900 billion in immediate spending cuts, as well as $1.2 trillion in triggered spending cuts — though they don’t much like the $500 billion or so of those cuts scheduled to fall on the Pentagon. They also drove President Obama’s approval ratings beneath 40 percent. And while I’m not one who thinks Republicans intentionally tank the economy to undermine Obama, there’s little doubt that the effect of the debt-ceiling debacle was to set back the recovery, brightening Republican prospects and darkening Democratic ones. The fact is that it’s easier to be sanguine about economic showdowns when you’re not the ones in charge.

For another, it’s Boehner’s only option in 2012. The Democrats, for once, have nothing but fiscal leverage. They’ve got the expiration of the Bush tax cuts, which all Republicans would hate and many Democrats would welcome. They’ve got the aforementioned spending trigger, which Republicans really have begun to fear for its cuts to defense spending. They can do nothing — or, more likely, offer Republicans a deal they can’t accept — and the resulting paralysis will swing fiscal policy far, far, far to the left. Threatening to default on the national debt is Boehner’s only piece of counter-leverage.

So of course Boehner will try and use the debt ceiling as leverage again. And again. And again. It’s pretty clear that, at this point, there’s no going back to the time when debt-ceiling increases came smoothly. If I were the market, I’d take the fact that the leader of one of the two parties has publicly said that he “welcomes” debt-ceiling showdowns as evidence that the United States is almost certain to default on its debt — if only temporarily — within the next decade or so.

The question is what, aside from complain, Democrats and the business community will do to stop him. Somehow, the debt ceiling needs to be taken off the table once and for all, either because Republicans forced a default in a way that they were blamed for the consequences and scared into never doing it again or because the president successfully pulled off one of the more creative maneuvers suggested during last year’s showdown (Bill Clinton, for instance, argued that Obama should invoke the Fourteenth Amendment — which says “the validity of the public debt of the United States . . . shall not be questioned” — to raise the debt ceiling unilaterally).