What Does the Government Shutdown Mean? That We're Not Focusing On Real Tax Issue

Don’t you just love this time of year? The leaves are changing colors, the air is crisp, and Washington is fighting another fiscal battle. Unfortunately, the annual signs of autumn are now accompanied with the Democratic vs. Republican budget showdown. Republicans voted to defund Obamacare, the president has refused to negotiate on raising the debt limit, and our government shut down Tuesday.  How can anyone doubt that the ever-elusive “grand bargain” will never happen?

What gets lost in all this political posturing is the fact that the United States is in desperate need of deficit and tax reform. The last time Congress enacted a comprehensive tax reform, Top Gunwas still in theaters. For those of us too young to remember, the year was 1986, and the president was Ronald Reagan. Democrats and Republicans in Congress worked together with President Reagan to pass the Tax Reform Act of 1986. In today’s Congress that sort of compromise and bipartisanship is unheard of. The Tax Reform Act of 1986 helped propel the American economy forward, paving the way for the boom of the 1990s. Our nation needs a tax code for a 21st century economy.

My goal is to borrow ideas from both sides of the political spectrum in order to find common areas where compromise can be made, and the Tax Reform Act of 1986 will be my main reference for policy ideas.  

President Reagan and Congress raised the maximum long-term capital gains rate from 20% to 28% and lowered the maximum ordinary income tax rate from 50% to 28%. They did this based on the principle that equal incomes should pay equal taxes. This principle should play a major role in any current discussion of tax reform. Is it fair that Warren Buffet pays a lower effective tax rate than his secretary?  A majority of Americans do not think so. Recall the uproar during the 2012 election over the revelation that Mitt Romney paid an effective tax rate of 14%. Since the wealthy receive most of their income from capital gains, and not ordinary income, it is only sensible they pay a similar rate. 

Today, the top capital gains rate (20%) is about 20% lower than the top income tax rate (39.6%). Many economists may argue that this is necessary to encourage investment by the wealthy. This may be true, but there is definitely room for Congress to raise capital gains taxes while still creating incentives for investment. One way to promote investing is to revive a 1985 proposal to index capital gains to inflation, which would provide a tax break to investors. For example, if inflation is 10% during the time one owned an asset, then the first 10% of capital gains would be tax-exempt.  This is just one of the numerous strategies that Congress could use to promote investment while closing the gap between capital gains and income taxes.

Increasing the capital gains tax serves as a positive step towards bringing more equality into our tax code. For those deterred by rhetoric about the battle of the 99% versus the 1%,  a higher capital gains tax is a more sensible, moderate way to reduce some of the tensions created by this perceived income inequality. Currently, the long-term capital gains rate is the same 20%, whether you make $1,000 or $1,000,000 in gains. A progressive capital gains rate (maybe one that mirrors the income tax brackets) may be another innovative policy Congress should consider.

Immigration Reform 2013: Reform Will Not Solve All Problems, But It Is a Start

“Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

I lift my lamp beside the golden door!”

For generations the Statute of Liberty greeted millions of immigrants on their journey to the land of opportunity. Whether it was for life, liberty, or the pursuit of happiness, individuals throughout the world traveled to our nation in search of the American Dream. It was and is a simple dream: the promise that you will be judged on the basis of your character, and not on the basis of your race, religion, class, or creed. It is the promise that through hard work and determination you can achieve a better life for you and your family. This promise is what motivates immigrants, legal and illegal, to come to the United States. Today, it seems as though the American Dream is slipping away, but we as a nation can fight to reclaim it, and the first step is to pass immigration reform.

For those who do not believe economic inequality is increasing (and surprisingly, 58% of Americans do not), here are a few key statistics to help illustrate the gravity of our nation’s problem. Income inequality, as measured by the Gini index, has been on the rise since the start of the new millennium. Relatively stable during the 1990s boom years, the United States' Gini index has risen significantly since the Great Recession (1.6% in 2011 alone, compared to 5.2% in the prior 17 years combined). 

Our economic “recovery” exceedingly seems to benefit the richest Americans, while the poor and middle class are left behind. The top 1% received 93% of the income gains in the first year of the recovery. Poor and middle-class wage stagnation is a major reason for this. Deregulation, privatization, globalization, erosion of the social safety net, and the destruction of unions have all contributed to an economy that values corporate profits over rising middle-class wages. Corporate profits are 22% above their pre-recession levels, while employee compensation is 3% lower. The result of these trends is the dreadful fact that 80% of American adults will face joblessness or reliance on some sort of government welfare program. 

So you may be asking, what does all of this have to do with immigration reform?  Organizations from across the political spectrum, from conservatives to progressives, claim that immigration reform will benefit the American economy, and low-wage Americans in particular. Illegal immigrants and low-wage workers are in perpetual competition for jobs.  When an illegal immigrant can work for less than the federal minimum wage, this puts poor Americans at a distinct disadvantage. According to the Cato Institute, legalization of low-skilled immigrant workers would increase the U.S. GDP by 1.27%, or $180 billion, largely because immigrants are more likely to start businesses than non-immigrants. A Small Business Administration studyfound that immigrant-owned businesses tend to have higher sales and are more likely to export good and services than non-immigrant-owned businesses. 

The United States of America is a nation of immigrants that was built upon the millions of individuals who traveled here in search of a better life.  We need to change our immigration system to one that can fulfill the requirements of a 21st century economy. Reform will not solve all of our nation’s problems, but it is a start. It will renew a promise: the promise that together we all prosper, the promise of a thriving middle class, and the promise that America will always be home to the hardworking, the tired, and the poor, yearning for an opportunity to succeed.  

The One Thing America Has to Invest In Immediately: R&D

The days of record setting deficits ($1.4 trillion in 2009) are behind us.  The budget deficit has fallen from 10% of GDP in 2009 to an estimated 5.3% in 2013 and the national debt is projected to fall from 76.3% of GDP to 73.1% in 2018.  Our nation’s improved fiscal situation can be attributed to a recovering economy, tax revenue increases, and the draconian spending cuts enacted by the sequester.  Instead of a grand bargain, Democrats and Republicans in Washington have gone for a piecemeal approach to deficit reduction and neither side is happy.  The left thinks we need higher taxes and more stimuli spending on job growth, while the right continues its austerity crusade.

And yet despite their differences, the President and Congress have authorized about $3 trillion of deficit reduction, but at what cost?  Our representatives in Washington chose short-term solutions over long-term reform.  The skyrocketing costs of entitlement programs, especially Medicare and Medicaid have not been addressed.  The Congressional Budget Office forecasts the deficit will start rising again in 2016 due the burdens of our aging population. 

Congress continues to let the American people down.  Instead of entitlement reform, we received the indiscriminate, across the board spending cuts.  These reductions may lower the deficit, but they will not create jobs.  As Jared Bernstein of the Center on Budget and Policy Priorities put it, “We’ve over focused on the deficit.  It’s time to tackle the job crisis.”

Our economy will never recover if we do not invest in the jobs, infrastructure, and research of the future.  This is the exact opposite of what Congress has done.  In a previous post, I discussed how our nation’s infrastructure investment gap would slow future growth.  Research funding by the National Institute of Health has been cut by 17%in the past decade, which “adjusted for inflation, puts overall funding at levels not seen since 1999.”  If the sequester cuts continue, the NIH will lose $19 billion dollars in funding over the next 10 years.

In order to stay globally competitive, the United States should increase research and development spending, not decrease it.  Countless innovations and immense economic value can come from government grants.  According to a Battelle Memorial Institute report, the $3.8 billion human genome project yielded $800 billion in economic growth and created 310,000 jobs.  Unfortunately, it seems more likely that future scientific breakthroughs will come from outside of the United States.

We need to take advantage of this period of falling deficits before it's too late.

Chad Kolinsky is a blogger and active member at The Can Kicks Back. 

Dispelling Chained CPI Myths

Dead on arrival… When President Obama released his budget recently, Congressional Republicans immediately shot it down. This was no surprise because the budget called for tax increases, which Republicans vehemently oppose. However, I was puzzled by the negative reactions of a few Democrats; after all, President Obama’s budget included many progressive ideas, such as more stimulus spending. What could have caused such dissent from his party? Well, the budget called for the adoption of Chained CPI to measure future inflation; a move that Democrats and Republicans condemned as an assault on seniors and a severe benefit cut. 

Shifting to Chained CPI entails updating and improving the way the federal government measures inflation for various government programs. The government indexes benefits (such as Social Security), in order to keep up with inflation, so that both rise at the same rate. The government has not changed the way it calculates inflation in quite some time. Since the 1990s, Chained CPI has been viewed as a more accurate measure of inflation than our existing policy because current estimates overstate inflation and, hence, benefits paid.

This brings me to the first myth about Chained CPI. Chained CPI is NOT a benefit cut. Chained CPI slows down the rate of growth of social security payments. Seniors will not wake up next month and receive any fewer dollars in Social Security benefits than they are used to. Chained CPI would shave only 0.3% off inflation estimates or about $9 annually for the average couple that retired in 2010. Under Chained CPI, Social Security benefits would keep up with cost of living, rather than increase faster than inflation as they do now. 

In fact, moving to Chained CPI actually helps strengthen Social Security. By 2033, the Social Security trust fund will be depleted and will require a massive increase in the payroll tax or a 25% across-the-board decrease in benefits. As the Baby Boomers retire over the next two decades, more and more pressure will be put on the Social Security trust fund. The worker-to-retiree ratio has fallen from 5:1 in 1960 to 3:1 in 2010 and will only continue to decline, which means less revenue to support beneficiaries. In two decades, Social Security will no longer be solvent. Imagine the horrors if the checks actually stopped coming! The shift to Chained CPI will help maintain social security for current and future retirees.

Another prevalent myth claims Chained CPI is a hidden tax increase that will hurt the poor, the disabled, and the elderly. Chained CPI will slow the growth rate for income tax brackets. Individuals right on the cusp of a higher tax bracket may suddenly be “bumped up” into a higher one. However, it is important to remember two points. First, due to our marginal income tax system, only the small portion of above the threshold will be taxed at a higher rate, and second, Chained CPI should be viewed as only one part of comprehensive tax reform.

Chained CPI alone will not solve our budget deficit problem nor will it close the Social Security funding gap, but Chained CPI or a similar policy will play an integral role in any budget deal between Democrats and Republicans. The switch has already been a part of most major bipartisan deficit-reduction plans (Simpson-Bowles, Domenici-Rivlin, Obama-Boehner). Fix the Debt, a non-partisan movement to fix America’s finances, states that the switch to Chained CPI will reduce the social security funding gap by 1/5 and reduce deficits by more than $300 billion over the next decade.

Chained CPI is not just smart policy; it is also smart politics. Congress and the President can easily find a way to make this happen and doing so will prove that both Democrats and Republicans are serious about solving America’s deficit crisis. Furthermore, Chained CPI does not just kick the can down the road to future generations. It asks all Americans, old and young, Democratic and Republican, to be willing to exchange a small amount of personal sacrifice for a whole lot of societal benefit.                 

Chad Kolinsky is a graduate of the University of Miami and a blogger for The Can Kicks Back (www.TheCanKicksBack.org), a non-partisan and Millennial-driven movement to fix the national debt. 

We are the Millennials

            We are the millennials. We are Generation Y.  We are the 95 million Americans born between the late 1970’s and the early 2000’s.  We are America’s largest age demographic, we are growing, and we are the future of this great nation. According to The Center for American Progress, by 2020, there will be 103 million of us: 90 million of which will be eligible voters representing 40% of the electorate. In the landmark 2012 election, for the first time in the history of the United States, more millennials voted than senior citizens.  President Obama successfully won our demographic by large margins in both the 2008 and 2012 elections.  In fact, in 2012, President Obama received about 5 million more votes from 18-29 year olds than Mitt Romney did. Just by looking at these figures, it is safe to say that the candidate, who wins the millennials, wins the election.  The new, perpetual presence of millennials within the electorate is an extremely important concept that will dictate the future of our nation. We, the millennials, need to grasp how significant the opportunity that lies before us is.  We need to wake up and understand the undeniable potential for change our generation can bring about.

We are a radically different generation compared to the Baby Boomers or even Generation X.  We are the first generation to grow up in a globalized world and to experience the political, social, and economic transformations brought about by the Internet. Most importantly, our generation understands that change is unavoidable, a necessity, to remain relevant within the modern world.  Unlike past generations, we do not partake in the nostalgia of “traditional America values” because American values have been evolving our entire lives.  We look back at the 20^th century to see what made our country great, and then look ahead to the future for ways to make our country even greater. 

            Our familiarity with change and the lack of traditional ideology allow millennials to offer new common sense solutions to our nation’s problems.  We understand the need to reform entitlements because the looming burden of retiring baby boomers ultimately falls upon us.  We see the need to alter our bloated defense spending because taking care of our battle weary veterans and defending against cyber warfare are a greater priority than creating surpluses of fighter jets.  We take a progressive approach in promoting green energy, investing in schools, and supporting government’s role in society.  And yet, we do not want the federal government making decisions that should be left to the states, such as the legalization of marijuana, and most recently, gay marriage. 

            The topic of gay marriage is a surprisingly accurate gauge of where our country stands, and in what direction it is headed. Within the next few weeks the Supreme Court will likely either throw out, or make significant changes, to key anti-gay marriage legislation.  In 1996, when DOMA was signed, many argued same-sex marriage was morally wrong and had to be prevented at all costs. Today, over half of the nation believes gay couples deserve the right to marry.  This is attributed, in large part, to the influence of us, the millennials.  73% of 18-29 year olds support gay marriage compared to 39% of those aged 65 and older.  Some surveys even show figures of millennials supporting gay marriage in ratios greater than 4:1.  Last week, Senator Rob Portman, R-Ohio, a potential Vice Presidential candidate for Mitt Romney, declared his support for same sex marriage.  The national conversation is changing on both sides of the aisle, and millennials are leading the way.

            Our generation is finally finding its voice in American politics.  The 2012 election was the 3^rd straight election in which more than 50% of eligible millennials voted.  As we continue to get out and vote, we will elect representatives who embody our generation’s hopes and dreams.  The number of Millennials in Congress increased 3% from the 112^th Congress to the 113^th Congress; today, over 35 house representatives are under the age of 40. These trends will only continue to grow in 2014, 2016, and beyond as our generation becomes more politically active and aware.

            Both Democrats and Republicans in Congress should take heed of this coming shift.  The refusal to reform entitlements, change our tax code, or invest in our future will not go over easy. If both parties do not pay attention to the changing political tides, then it is all to likely that we just might put an end to this defunct two party system and create a party of our own. When Congress kicks the can down the road, it lands squarely in our laps - if Washington cannot solve our nations problems, then we Millennials will find representatives who will. 

            

Investing in Growth

            The word on everyone’s mind is sequester.  Turn on the news, the radio, or pick up a magazine and you will see it.  The sequester is a series of indiscriminate spending cuts to lower our nations budget deficit.  It will cut government programs across the board; excluding entitlement spending (the true cause of our debt crisis).  Entitlement spending requires more and more of our nations budget each year and yet our leaders in Washington refuse to discuss actual reform.  President Obama has proposed to base future entitlement payments on chained-CPI, which will save a substantial amount of money.  However, this does not address the fundamental problems with Medicare and Social Security (high medical costs combined with an aging population). 

            Even better, the sequester is a manufactured crisis; a result of Washington’s inability to compromise and lead our nation out of a weak recovery.  The purpose of the sequester was to force Democrats and Republicans to work together for real reform.  Who in their right mind would allow these indiscriminate budget cuts?  Our leaders in Washington would HAVE to make a deal before the sequester comes into effect.  Once again the American people have been let down. 

            With all this talk of spending cuts, one key aspect of our recovery is lost in the noise.  Where is the discussion of growth?  How will Washington help the American economy prosper in the 21^st century?  We might be able to cut our way to lower deficits, but we cannot cut our way to more economic growth.  The best way to increase revenues and decrease our deficit is to increase the taxable base.  What better way to increase revenues, then through growth inspired policies?  The faster the economy prospers, the quicker a solution to our debt will emerge. 

            Today’s low interest rate environment puts us in a unique position to invest in our future.  With interest rates at record lows we can borrow and invest to help our nation prosper.  But we must act now!  If the FED’s minutes this week showed anything, it was the fact that interest rates will not be low forever.  Washington’s fiscal policy needs to compliment the FED’s monetary policy. 

            Now some people may argue that the government has tried and failed to steer the economy in the right direction.  They will point to the trillion dollar deficits of the past four years and failed investments in companies like Solyndra and A123.  However, I beg to differ.  Imagine what our economy would look like today if the government spent trillions on research and development, education, and infrastructure rather than bailing out big banks.  What we need today is a smarter government that invests its limited funds efficiently; not a smaller government that you can  “drown in a bathtub”. 

             Like it or not the government plays an instrumental role in steering the economy.  It is time to move beyond the ideology of how we would like our government to be and accept the reality of what government is.  Washington has played an important role in the economy for generations.  President Eisenhower, a republican, invested in America’s infrastructure and help build the interstate highway system, which revolutionized commerce in our nation.  The Apollo program provided advances in technologies ranging from kidney dialysis, to semi-conductors, to athletic shoes.  And we should never forget that the United States Military played an instrumental role in developing ARPAnet, the precursor to the Internet. 

            The American economy is revved up and ready to go; we just need Washington to clear us a path.  Will they decide for a short-term Band-Aid or real investment in our future?  Will they maintain entitlements for the older generations or provide a future for the younger generation?  It is time for millennials to make our voice heard in Washington.  Our government needs incentives to focus on long-term solutions.  It is time for us to stand up and demand a prosperous future!

What did all that money buy? An argument for campaign finance reform

            This election cycle was the most expensive in history.  Candidates, Super Pacs, and political parties spent around $6 billion on federal, state, and local elections.  The Obama and Romney campaigns spent a little under $2 billion dollars combined.  In the post-Citizen’s United era the media-political industrial complex flourishes like never before.  A majority of the spending bought TV ad space, especially in the swing states.  I spent one weekend down in Miami and I saw political ads every commercial break.  300,000+ ads aired in Ohio alone.  And yet what did all this money by?

            Sheldon Adelson, the godfather of Newt Gingrich’s campaign and single largest donor in the 2012 election, spent over $50 million.  And what does he have to show for it?  Every candidate he backed at the state level lost, except one (I believe he lost 9/10) and Sheldon contributed $20 million to the failed primary campaign of Newt.  Too many $50 million is more than we will make over many lifetimes, but it is pocket change to Sheldon.  He stated he would spend over $100 million to defeat President Obama, so by his standards he went cheap this election cycle. 

            Karl Rove was another grand spender of this election cycle.  He planned to defeat President Obama and win back the Senate for Republicans via Crossroads GPS and American Crossroads.  These groups spent over $300 million combined!  And once again I ask, what do they have to show for it?  Democrats actually gained seats in the Senate and by any metric Karl Rove, Crossroads GPS, and American Crossroads were failures. 

            So what did we learn from this election?  Money cannot buy victories?  The consequences of Citizen’s United and unlimited political contributions by corporations and unions were overstated?  Some people are making that exact argument; that this election cycle shows we don’t have to worry about campaign finance reform and political spending. 

            However, if this election has shown anything, it is that individuals and corporations will spend exponentially large amounts of money to help the candidates they support.  And it just so happens that the most fervent contributors also possess the most extreme views.  As Democrats and Republicans have moved to the radical left and right, the last thing we need are more extreme candidates. 

            Today it is way too easy for a Karl Rove or a Sheldon Adelson to fund a campaign against a candidate he does not agree with; or for Grover Norquist and American’s for Tax Reform to fund a challenger to a Republican Congressman who did not sign the Taxpayer Protection Pledge to not raise taxes - under any circumstances!  

            These are not the candidates America needs.  We need more moderate, bipartisan candidates, and not for far left / far right candidates who refuse to compromise.  And we need 3^rd party candidates who have real chances at winning elections.  So until I start to see billions of dollars spent on independent campaigns, I will argue against Citizen’s United and for campaign finance reform. 

            The real loser’s in the post Citizen’s United era are the American people because more political spending leads to more extreme candidates, which leads to less compromise and governance, which leads to more cynicism and punditry in the media, which leads to more political spending by radical individuals.