what is democratic socialism?

jcase
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Two important articles these past 2 weeks have highlighted liberal critiques of the "democratic socialists" programs on Medicare for All. The articles are: 1) Paul Krugman's critique of Medicare For All as a litmus test; 2) Natasha Sarin's and Larry Summers alternatives to tax proposals by Senator Elizabeth Warren and Alexandria Ocasio-Cortez. In each case, the author(s) is taking issue with "too much socialism" in the Democratic Socialist agenda, notably expressed in the presidential campaign of Bernie Sanders, and  from newly elected Congresswoman from the Bronx, NY, Alexandria Ocasio-Cortez.

I call them "important" because these are among the best and most experienced minds in economics, with generally progressive values, combined with deep experience in implementing economic theory into policy, policy into politics,  and politics into law.

Further, none other than Barack Obama appears to have weighed in cautioning "progressives" in the Democratic party and presidential campaigns to "not create circular firing squads". Many justly criticize the Affordable Care Acts defects. Most of the defects, so far, are the product of Republican sabotage. No one knows better than Obama the character of the resistance to health care reform. Nonetheless, campaigns based on fixing Obamacare risk becoming victims of the maxim: "there is no education in the second kick of a mule."

This does not make the critics authoritative. I am not sure anyone can be called "authoritative" in this Brave New World. But socialists might be  well-advised to answer the challenges therein, including asking are they really substantive "challenges"? What is "too much socialism"? What is too little? The multi-layered crises confronting all nations are nearly  inseparable from  market economics, yet there are few solutions that do not rely upon the positive behavior of markets in many if not most areas for supplying the means of life, and for the emancipation and rise of labor. Even if such policies were called "socialism with American characteristics"/

To even more complicate matters a new book , OPEN -- The Progressive Case for Free Trade, Immigration, and Global Capital, by Kimberly Clausing, makes a compelling, progressive defense of globalization and openness, of managed capitalism, and for expanded, not restricted, trade relations.  This book runs counter to prevailing narratives and  intuition in Left literature. The book is having a strong impact among progressive economists. It supports justified populist demands for institutional reforms. That means making it legal, within certain restraints, to choose more or less "socialism" (or strong industrial policies like the Green New Deal) in development policy, and to attack both national and global inequality in the distribution of gains  from trade via global tax reform (a la Thomas Piketty). However it does so within a fundamentally market oriented, capitalist context. The book emphasizes workforce adaptation over resistance to globalization. and an enhanced Pay the Losers and Make them Winners infrastructure and programs.

I will not further summarize this material -- it deserves to be read and studied, since these are leading and serious social scientists and thinkers not given to phrasemongering. They too, like all of us, are finding their way in the ever stranger political, economic and cultural terrains.

Instead, keeping the above thinking in mind, I ask: What is democratic socialism? I have been tracking most, and participating in several, socialist trends in the US for many decades. This is good and bad. On the good side, I see patterns in "democratic socialism" seen many times before, although never with the range and scale of interest now. Never with the electoral power of today. Sanders has transformed the terrain of socialist politics. On the bad side,  the "been there done that" sensations are not all that reliable and can lead to underestimating the new and different.

Answers

1. I do not know.

Given the immense scale, wealth, complexity, and diversity -- on every dimension -- of US society, plus its equally vast global entanglements and responsibilities, my only honest answer is: I do not know.  Undoubtedly it involves economically a substantial expansion of the public sector, perhaps as large as Roosevelt, paid for by progressive taxation (either of the Warren/AOC mode, or some other). And also paid for, hopefully, by real efficiencies arising from rationalizing health care and energy and focused investments in productivity enhancing services (e.g. education, health care) and infrastructure.

But many areas of reform have potential powerful side effects and high risk, unknown consequences.  Climate change is a perfect example.  But so are interventions in global financial markets! There are major trial and error confrontations on both roads. The wise overall policy of democratic socialism -- beyond emergency course correction steps on inequality, climate change, and tax/budget fronts  -- would be to promote experimental, and more scientific, frameworks to test the best approaches to social, infrastructure and industrial engineering initiatives. Facts, Not Dogma (Deng Chou Peng) would be a good slogan to warm up. Dogma is a weakness to which socialists have frequently fallen prey. (I will confess).

I believe we carry little more of use on the road we are headed than a  roadmap of values, the broadest possible mastery of science, and a memory of capitalism's long and, in some ways, quite mysterious trajectories. Those trajectories surprised generations before us, and they appear to be doing it again.

The values are our destinations: peace, justice, a healthy environment, and a material and cultural standard of living that gives rise to our highest aspirations -- those that reveal our true destines. There will be more than one.

One way to think about it is a great baseball game: A. Solve conflicts with games not guns; B. A good and impartial umpire to eject foul play from the game, a fair game is required; C. A good park. Advanced society requires support for leisure.  D. A chance at bat show your stuff; E. A chance in the Field -- to show you are A team. In other words, the pursuit of happiness.

2. Democratic socialism is managed capitalism in the current era. I cannot see how any other conclusion escapes complete fantasy for the United States.  The question is: managed by who?  Socialism has two meanings. One refers to the extent of public vs private property where a market oriented economic system is driving the division of labor and wealth. The other refers to the political and social values of the social classes, in a given country, that favor the former.

•  Note: Undemocratic socialism is ALSO managed capitalism, at least in this era.
• Note:  Democratic capitalisms have socialized sectors

Let me use Paul Krugman's stance on Medicare for All as an example of my difficulty in knowing What is Democratic Socialism? - other than Managed Capitalism for the foreseeable future.

All of Paul Krugman's questions about an inflexible, or dogmatic, approach to "medicare for all" are valid. And the alternatives he mentions -- mainly highly regulated mixed systems -- MIGHT be a better, less disruptive means of transforming and integrating a national system out of tens of thousands diverse institutions and services spread across thousands of state, county and municipal health care services that would be bigger and more complex than any health care system on earth.

This argument in effect says the insurance industry's entanglement with the US economy is so deep that nationalizing, permanently, this sector will result in "political chaos".

Bernie responds -- I will use my familiarity with him and his political/economic stance as a stand up example democratic socialist. The quotes are close, but not exact.

"You can't get there (universal coverage) from here if you do not take on the insurance industry and pharmaceutical corruption head on! They will sabotage any tinkering and raise the overall costs of the system while at the same time delivering less not more universal services. As they have done and are doing!"

So true. '

But Bernie too, should he become President, MUST OBTAIN MAJORITIES IN BOTH HOUSES, AND A REVAMPED SUPREME COURT, AND A NATIONAL MANDATE  powerful enough -- general strikes??-- to deal with the REDOUBLED resistance of overthrown or expropriated forces who will exploit every disrupted or reactionary constituency, who will threaten, as they did at the onset of the financial crisis negotiations with both the Bush and  Obama administrations, a serious capital strike and an unemployment rate over 30% if they are not "bailed out because they are too big to fail". There is the decision point, or a good recent metaphor for one. Do you avoid "chaos", again, even though here we are in the midst of President "chaos"? Do you bail out the insurance industry? -- and Wall Street too again since the insurance industry is like the liver AND blood of the financial system now. Or do you arrest the CEOs on the spot, and restart negotiations with what remains?

The real progress toward Medicare for All will be incremental and zig zag, no matter what.  But I think the political dragon lurking behind the demands for Medicare for All, and the more mixed systems, is the dragon of revolution, the potential violence inherent in displacing or reorganizing a significant sector of wealth.  Displaced, very powerful, economic blocs and factions to not leave the scene willingly.  Witness the slave owners or the King of England, or the Tsars of Russia. They do not fall on their swords. No vote that nationalizes insurance property will be viewed as legitimate or acceptable. Resistance to reform will be redoubled. Revolutionary means and approaches, however,  open Pandora's box. Everyone will lose some skin to move on historically. But if you fail to open it,  history may open it for you.

Both force and science will likely be required. The force part is a decisive, well organized majority. The science part will resolve the policy differences between liberal (less socialist) and democratic socialist approaches on health care.

The force part will probably be resolved by Republican reaction, as they remain determined to destroy ALL public options, reform or "socialist": Just like Fort Sumter resolved the differences between Abraham Lincoln and Frederick Douglas. Of course the era that follows may or may not be as democratic as hoped.  Democracy, certainly the formal kind, requires security. Revolutionary eras put that at risk too.

As Tom Joad remarked:

"They stood on the mountain
and looked to the west'
and it looked, like promised land.
A great green valley with a river running through,
there was work for every single hand, they thought.
there was work for every single hand."

Housing discrimination underpins the staggering wealth gap between blacks and whites [feedly]

Housing discrimination underpins the staggering wealth gap between blacks and whites
https://www.epi.org/blog/housing-discrimination-underpins-the-staggering-wealth-gap-between-blacks-and-whites/

Wealth is a crucially important measure of economic health—it allows families to transfer income earned in the past to meet spending demands in the future, such as by building up savings to finance a child's college education.

That's why it's so alarming to see that, today still, the median white American family has twelve times the wealth that their black counterparts have. And that only begins to tell the story of how deeply racism has defined American economic history.

Enter EPI Distinguished Fellow Richard Rothstein's widely praised book, "The Color of Law," which delves into the very tangible but underappreciated root of the problem: systemic, legalized housing discrimination over a period of three decades—starting in the 1940s—prevented black families from having a piece of the American Dream of homeownership.

Over the years, this disparity was compounded by not only ongoing discrimination but also the legacy of prior practices.

Figure A

"This enormous difference in (wealth) is almost entirely attributable to federal housing policy implemented through the 20th century," says Rothstein as the narrator in animated film about his book, entitled "Segregated by Design."

Director Mark Lopez uses innovative visual techniques to walk the viewer through Rothstein's story, and the results are moving and compelling.

"African American families that were prohibited from buying homes in the suburbs in the 1940s and 50s, and even into the 1960s, by the Federal Housing Administration gained none of the equity appreciation that whites gained," Rothstein says in the short film.

The discrimination happened on several levels—and often culminated in violence against black families trying to move into neighborhoods that had been effectively designated as white by government policy. Sometimes these designations took place quite literally as maps were divided up along racial lines with different colors on the maps. Black neighborhoods were painted red—hence the term "redlining"—which only became illegal after the Fair Housing Act of 1968.

In addition, "state sponsored violence was a means, along with many others, at which all levels of government maintained segregation."

Rothstein acknowledges that the problem runs so deep that it can never be completely untangled, but also argues that partial reversal are possible and can be encouraged by sound economic and housing policies. It starts with knowing how it happened.

"If we understand the accurate history—that racially segregated patterns in every metropolitan area like St. Louis were created by de jure segregation—racially explicit policy on the part of federal, state, and local governments designed to segregate metropolitan areas, then we can understand we have an unconstitutional residential landscape," Rothstein says.

"And if it's unconstitutional, then we have an obligation to remedy it," he adds. "We must build a national political consensus leading to legislation, a challenging but not impossible task, to develop policies that promote an integrated society."

Until then, the legacy of racist housing practices will remain a fact of life in most American cities.

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Summers: Ten Years Later: Reflections on the 2008–09 Financial Crisis [feedly]

An interesting defense -- and critique -- of Obama admin actions at the onset of the Great Recession. I think the  comparison of the UK's temp nationalization followed by irrational Brexitism to NO nationalization in the US followed by Trump is a weak defense of the latter, a little like constructing any two legged stool and watching it fall over. But, Summers has so much experience at the translation of theory into policy that its wrong to not take his review and critiques very seriously.

Ten Years Later: Reflections on the 2008–09 Financial Crisis
http://larrysummers.com/2019/04/01/ten-years-later-reflections-on-the-2008-09-financial-crisis/

The Brookings Institute

January 10, 2019

 

Did we do right thing?

No. Then yes. Then no.

If you looked at what was happening to the economy in 2007, at the runup to Bear Stearns failing and what happened to after Bear Stearns failed, there was obviously a gathering storm. Nobody did much except react. Banks were allowed to continue paying dividends. Nobody was forced to recapitalize. The situation drifted along. There should have been shock and awe of capital, a recognition that maintaining demand was the most important objective of macro-economic policy. Yet nobody did much. It was an obvious mistake, even at the time.

But in the crucial period of six months between the time Lehman Brothers fell and the period after the stress test, America rose to the occasion. The banks were substantially recapitalized; significant fiscal stimulus was delivered; substantial interventions to provide liquidity to the financial markets were engineered; and the sharpest "V" in the history of the major economies was recorded between the first and second quarters of 2009. On the precipice of a truly historic economic calamity, we acted decisively, appropriately, and effectively. And this was by far the most important period to get it right.

By the end of 2009, however, driven by misguided concern about budget deficits and a desire to get to long-run agendas, we declared that the green shoots of recovery were at hand and left the battlefield. Demand was still too weak to drive a robust recovery, and as a consequence, the expansion was substantially slower than it could have been, with less capital investment and more people unemployed for a longer period of time. The lost output certainly cast a shadow forward.

So at the most important moment, we acted. But we waited too long and declared victory prematurely.

Could we have avoided a populist backlash?

There are reasons rooted financial crises in general that serve as catalysts for populist uprisings: in particular the need to provide support to existing financial institutions, especially powerful ones, at the same time that masses of people suffer dislocation. But had we adopted more draconian policies towards the financial institutions, would it have somehow curbed the populist pressure? The best natural experiment says no. Britain nationalized two of their four major banks, yet they got "Brexited" at about the time that we got Trump.

Then there's the more extreme anti-establishment solution: the government simply stands back and lets businesses fail. The economic fires burn themselves out, the theory goes, without taxpayers putting any money in. We have a natural experiment for that, too, and it was what made the Great Depression great.

In fact, if you look at a graph of any interesting economic statistic from the beginning of the fall of 2008 to the beginning of 2009, it looks kind of just like the Great Depression did after 1929. And if you look at the subsequent five years, although our economy could've been better, it doesn't look anything like the Depression. Unemployment peaked at 10 percent, not 25. Had we decided against government action, we would have had something like the Great Depression. And even in terms of the federal budget alone, the government would lost 10 times as much revenue from the destruction of our economy as it would have gained from not having to spend money on bail outs—the vast majority of which came back to the government anyway.

Should we have nationalized banks?

When you nationalize an institution, the first question everyone asks is, "What happens next?" The situation is temporary, so how does it end?

Inside the bank, employees will generally make a fairly obvious calculation: If the government's going to own and liquidate it, people who can get other jobs usually do. Talent leaves.

On the consumer side, debtors owing money to a bank that will never give them a new loan feel less pressure to pay back the old one. New customers give their business to banks that aren't in liquidation and run by the government. For all these reasons our experience is that government intervention in banks is invariably a major destroyer of asset value. It would have been far more expensive for taxpayers had the government intervened in the banks. And those weaker banks would have been far less helpful in contributing to the recovery.

There were those who said at the time, "Well, what about the Swedish model?" But the Swedish government already owned 80 percent of the banks before the crisis started: The government putting additional capital into a bank that it already 80 percent owns really isn't analogous to the situation we were facing. As for comparing this crisis to a standard intervention by the FTC, there certainly wasn't anybody sitting around in the middle of the biggest financial crisis in 60 years ready to absorb a big bank as if it were a community bank.

Others simply say that banks didn't suffer enough compared to everybody else. But if you were a shareholder in the banks that people talked about nationalizing, after we've had a 10-year recovery your investment is worth about 10 percent of what it was before the crisis started. To enact a harsher penalty, you would have had to destroy an enormous amount of value.

Is capitalism itself in crisis?

Many of the problems of capitalism are actually a feature of its success. It is a truism that middle-class wages have been stagnating. But we should remember how dramatically more efficient our economy has become. It takes takes about a third as many working hours to purchase a refrigerator as it did in 1973. It takes half as many hours to buy a shirt; one-sixth to buy a television. If you take the goods produced by what we think of as capitalism, there has been a massive increase in purchasing power over the last 45 years.

The challenge is how do we adapt to that increased efficiency, which is very much like what happened to agriculture. Agriculture has become so efficient that now it's kind of irrelevant to the economy, less than two percent of our working population. And that what's happening to traditional capitalist—particularly manufacturing—activity. Today in America only a four-and-a-half percent of workers are doing production work in manufacturing. There are more 50-year-old men on disability than doing production work in manufacturing—precisely because it's become so productive. Fewer people are producing goods. More people are producing services.

What do we do in healthcare? What do we do in education? What do we do in housing? How do we handle social media? The difficulties and challenges come not from not the workings of capitalism but from the particular activities our workers move to as traditional capitalism succeeds. These are the economic policy challenges for the next generation. You can't think about healthcare the way you think about the market for shirts. You can't think about taking care of the aged the way you think about selling automobiles.

So is traditional capitalism enough? No. But rejecting traditional capitalism would not—if you look at places such as Venezuela, Cuba, and North Korea—seem to be the answer either.  As for China, anyone who looks at it thoughtfully has to say that, for the most part, the reason China has done phenomenally well over the last 40 years is that there are a lot more markets, a lot more property, and a lot more openness to the rest of the world than there used to be. A broad rejection of capitalism is a poor substitute for taking on the real economic challenges that face the United States today.

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A broader tax base that closes loopholes would raise more money than plans by Ocasio-Cortez and Warren

NATASHA SARIN AND LAWRENCE H. SUMMERS  

Tax reform debates have been transformed in recent weeks by a shift in emphasis from revenue raising and progressivity to an emphasis on going after the rich for the sake of equality and justice. Bold proposals from Representative Alexandria Ocasio-Cortez of New York, for a 70 percent marginal tax rate on top earners, and from Senator Elizabeth Warren of Massachusetts — a 2020 Democratic presidential candidate — for a wealth tax on those worth more than $50 million have attracted widespread attention.

Warren's proposal aspires to raise roughly 1 percent of GDP ($2.75 trillion in the next decade). Ocasio-Cortez's proposal is estimated to generate around one-third of 1 percent ($720 billion in the next decade). By way of comparison, the Trump tax cuts will cost the federal government about $2 trillion over the next decade. We agree with Ocasio-Cortez and Warren that increases in tax revenue of at least this magnitude are necessary. We also agree that the way forward is by generating more revenue from the most affluent Americans. Indeed, it may well be necessary and appropriate to raise more than Warren's targeted 1 percent of GDP from those at the top.

Where we differ from Warren and Ocasio-Cortez is in our belief that the best way to begin raising additional revenue from highest income tax payers is with a traditional tax reform approach of base broadening and loophole closing, improved compliance, and closing of shelters. We show that these measures, along with partial repeal of the Trump tax cut, can raise far more than recent proposals. These measures will increase economic efficiency, make our tax system more fair, and are perhaps more politically feasible than a wealth tax or large hikes of top rates. It may be that measures beyond base-broadening are appropriate and desirable given the magnitude of the revenue challenge we face. But base-broadening is the right place to begin.

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Below we outline proposals for broadening the tax base that meet a stringent test: These are measures that would be desirable even if we did not have revenue needs. They are progressive and attack those who have received special breaks for too long. And together, the revenue-raising potential of these measures exceeds that of the 70 percent top rate or the wealth tax. We believe this is where the progressive tax policy debate should begin.

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Emphasis on compliance and auditing of the rich. In 2017, the IRS had only 9,510 auditors — down from over 14,000 in 2010. The last time the IRS had fewer than 10,000 auditors was in the mid-1950s. Since 2010, the IRS budget has decreased by over 20 percent in real terms. The result is that individuals and corporations are shirking their responsibilities: The most recent estimate by the IRS suggests that taxpayers paid only around 82 percent of owed taxes, losing the IRS over $400 billion a year.

The Congressional Budget Office estimates that spending an additional $20 billion on enforcement in the next decade could bring in $55 billion in additional tax revenues. This excludes the indirect deterrent effects of greater enforcement, which the Treasury Department has estimated are three times higher. Outlays at this level would still leave the IRS operating with budgets in real terms that were nearly 10 percent below peak levels, which themselves were leaving large amounts of revenue on the table.

In addition to the level of investment in enforcement, there is the question of the allocation of enforcement resources. It has been estimated that an extra hour spent auditing someone who earns more than $1 million a year generates an extra $1,000 in revenue. And yet in 2017 the IRS audited only 4.4 percent of returns with income of $1 million or higher, less than half the audit rate a decade prior. Remarkably, recipients of the earned income tax credit, who never have incomes above $50,000, are twice as likely to be audited as those who make $500,000 annually.

No one can know exactly the potential for increased enforcement to raise revenue. Suppose instead of investing an extra $20 billion over the next decade, we invested $40 billion and focused on wealthy taxpayers, perhaps taking the audit rate for million-dollar earners up to 25 percent. Considering the direct benefits and the multiplier from deterrence, it is not unreasonable to suppose that over a decade $300 billion to $400 billion could be raised.

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This revenue increase — unlike a revenue increase from new taxes or higher rates — will have favorable incentive effects. It will encourage people to participate in the above-ground economy. And what could be more of a step toward fairness than collecting from wealthy scofflaws?

Closing corporate tax shelters. All too often, corporations are able to make use of tax havens, differences in accounting treatment across jurisdictions, and other devices to reduce tax liabilities. Economist Kimberly Clausing estimates that profit-shifting to tax havens costs the United States more than $100 billion a year. Although the Trump tax plan sought to reduce the incentives for profit-shifting, various exemptions and design flaws mean that the new system does little to deter shifting revenues to tax havens. Fairly incremental changes will have a large impact: For example, a per-country corporate minimum tax rather than a global minimum tax will increase tax revenues by nearly $170 billion in a decade.

But there is much more to be done. A robust attack on tax shelters — that included, for example, tariffs or penalties on tax havens as well as stricter penalties for lawyers and accountants who sign off on dubious shelters — could raise twice the revenue attainable from a per-country minimum tax, or about 30 billion annually. It would also encourage the location of economic activity in the United States and discourage the vast intellectual ingenuity that currently goes into tax avoidance.

Closing individual tax shelters. Like the corporations they own, wealthy individuals make use of myriad loopholes in the tax code to shelter their personal income from taxation. Most high-income taxpayers pay a 3.8 percent tax that pays into entitlement programs like Social Security and Medicare. However, some avoid these payroll taxes by setting up pass-through businesses and re-characterizing large shares of their income as profits from business ownership, rather than wage income. The Obama administration's proposals to close payroll tax loopholes were estimated to generate $300 billion over a decade.

Another egregious loophole is 1031 exchanges, which allow real estate investors to sell property, take a profit, and defer paying taxes on those profits so long as they reinvest them in similar investments. There is no limit on the number of these exchanges that investors can make. Consequently, the wealthy use 1031 exchanges to build up long-term tax-deferred wealth that can eventually be passed down to their heirs without taxes ever being paid. Outright repeal of 1031 exchanges were estimated in 2014 to raise around $40 billion in a decade and would raise almost $50 billion today.

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Another tool used to shelter individual income from taxation is carried interest. Income that flows to partners of investment funds is often treated as capital gains and taxed at lower rates than ordinary income. This creates a tax-planning opportunity for investors to convert ordinary income into long-term capital gains that receive much more generous tax treatment. President Trump repeatedly vowed that his signature tax cuts would eliminate the carried-interest loophole, saying it was unfair that the ultra-wealthy were "getting away with murder." However, in the face of significant lobbying pressure, the administration abandoned these plans. The Joint Committee on Taxation estimates that taxing carried profits as ordinary income would generate over $20 billion in a decade.

There are better ways to shake money out of the tax system than a wealth tax.

Other ways in which individuals can shelter income include misvaluing interests such as shares in investment partnerships when putting them in retirement accounts as well as schemes involving nonrecourse lending.

Closing tax shelters would level the playing field in favor of investments by companies that create jobs and to the detriment of various kinds of financial operators. This would raise employment and incomes as well as contributing to fairness.

Eliminating "stepped-up basis." Wealth tax advocates rightly point to an important gap in our current system. An entrepreneur starts a company that turns out to be highly successful. She pays herself only a small salary, and shares in the company do not pay dividends, so the company can invest in growth. The entrepreneur becomes very wealthy without ever having paid appreciable tax, as the income that made the wealth possible represents unrealized capital gains.

Unrealized capital gains explain how Warren Buffett can pay only a few million dollars in taxes in a year when his wealth goes up by billions. Astoundingly, no capital gains tax is ever collected on appreciation of capital assets if they are passed on to heirs. Specifically: When an investor buys a stock, the cost of that purchase is the tax basis. If the stock rises in value and is then sold, the investor pays taxes on the gains. If an investor dies and leaves stock to her heir, that cost basis is "stepped up" to its price at the time the stock is inherited. The gain in value during the investor's life is never taxed.

Implementing the Obama administration's proposals for constructive realization of capital gains at death would raise $250 billion in the next decade. This is a progressive change that would impact only the very wealthy: Ninety-nine percent of the revenue from ending stepped-up basis will be collected from the top 1 percent of filers.

Eliminating stepped-up basis will also make the economy function better and so would be desirable even if it did not raise revenue. The fact that capital gains passed on to children entirely escape taxation provides aging small-business owners or real estate owners a strong incentive not to sell them to those who could operate them better while they are alive. It also makes it much more expensive to realize capital gains and use the proceeds to make new investments than it would be if the capital gains tax was inescapable.

Capping tax deductions for the wealthy. Today, a homeowner in the top tax bracket (post-Trump tax cuts, 37 percent) who makes a $1,000 mortgage payment saves $370 on her tax bill. Under an Obama administration proposal to limit the value of itemized deductions to 28 percent for all earners, that same write-off would save this wealthy taxpayer just $280. Importantly, such a cap would raise tax burdens only for the rich: Those with marginal rates under the cap would still be able to claim the full value of their itemized deductions. The plan to cap top-earners' itemized deductions was estimated to raise nearly $650 billion in a decade. Recognizing that the Trump tax plan scaled back the mortgage interest deduction and state and local tax deductions, we estimate that additional limits on top-earner deductions could generate around $250 billion in a decade.

As with the elimination of stepped-up basis, the distributional case for capping tax deductions is strong. The mortgage interest deduction provides a tax advantage to homeowners; promoting homeownership is a worthy goal. But there is little rationale for subsidizing home ownership at higher rates for richer rather than poorer taxpayers.

End the 20 percent pass-through deduction. Perhaps the most notorious of the Trump tax changes, the pass-through deduction provides a 20 percent deduction for certain qualified business income. This exacerbated the tax code's existing bias in favor of noncorporate business income and so reduces economic efficiency. And the complex maze of eligibility is arbitrary, foolish, and a drain on government resources: The Joint Committee on Taxation estimates that this provision will reduce federal revenues by $430 billion in the next decade. Eliminating the pass-through deduction will reduce incentives for tax gaming and raise revenue primarily from taxpayers making more than $1 million annually.

Broaden the estate tax base. Prior to the Trump tax reform, only 5,000 Americans were liable for estate taxes. The recent changes more than halved that small share by doubling the estate tax exemption to $22.4 million per couple. The Joint Committee on Taxation estimates that this change costs around $85 billion, with the benefits accruing entirely to 3,200 of the wealthiest American households. Repealing the Trump administration's changes and applying estate taxes even more broadly — for example, as the Obama administration proposed, by lowering the threshold to $7 million for couples — would raise around $320 billion in a decade. The estate tax would still only impact 0.3 percent of decedents.

In addition to the question of the appropriate floor on estates, there is also ample room to attack the many loopholes that enable wealthy families to largely avoid paying taxes when transferring wealth to their progeny during their lifetimes. This happens through a mix of trust arrangements, intra-family loans, and dubious valuation practices to evade gift-tax liability. Strengthening the taxation of estates would raise revenue and be efficient, diverting resources from tax planning and increasing work incentives for the children of the wealthy. We are enthusiastic about proposals, notably by Lily Batchelder, that call for the conversion of the estate tax into an inheritance tax, to appropriately tax inherited privilege and discourage large concentrations of wealth.

Increasing the corporate tax rate to 25 percent. When corporations began lobbying efforts on corporate tax reform, their stated objective was a 25 percent corporate rate. Business leaders produced estimates showing how this 25 percent rate would have prevented foreign purchases of thousands of companies and shifted billions in corporate taxable income to the United States. The Trump tax cuts delivered more than the business community asked, slashing the corporate rate to 21 percent. The CBO estimates that a 1 percentage point increase in the corporate tax rate will generate $100 billion in the next decade. Based on this estimate, a 4 percentage point increase to 25 percent will generate an additional $400 billion in revenue.

Raising the corporate tax rate would not increase the tax burden on most new investment, because it would raise in equal measure the value of the depreciation deductions that corporations could take when they undertook investments. The principle losers from an increase in the rate would be those earning economic rents in the form of monopoly profits and those who had received enormous windfalls from the Trump tax cut.

Closing tax shelters used by the wealthy alone raises more revenue than Ocasio-Cortez's proposal. And together, the reforms we propose raise far more than a 70 percent top tax rate, and more too than Warren claims her wealth tax will generate. These base-broadening, efficiency-enhancing reforms are the best way to start raising revenue as progressively and efficiently as possible. To be sure, it may well be that wealth taxation or large increases in top rates are necessary to adequately fund government activities. But we advocate these approaches only after the revenue-raising potential of base-broadening is exhausted.

Tomorrow: The challenges in the rate hike and wealth tax proposals.

Related

• Warren's wealth tax proposal could alter how Democrats talk about economic inequality
• Elizabeth Warren proposes wealth tax and lays down 2020 marker
• Alexandria Ocasio-Cortez calls Trump a racist, outlines 'radical' policies on '60 Minutes'

Natasha Sarin is an assistant professor of law at the University of Pennsylvania Law School and an assistant professor of finance at the Wharton School. Lawrence H. Summers is the Charles W. Eliot University Professor at Harvard and former US Treasury secretary.  

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John Case
Harpers Ferry, WV

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Highly recommended: Kim Clausing's is the best defense of globalization and openness I have read in years. And former Obama CEA Chair Jason...

Kim Clausing's is the best defense of globalization and openness I have read in years. And former Obama CEA Chair Jason... https://www.bradford-delong.com/2019/03/jason-furmans-review-of-open-the-progressive-case-for-free-trade-immigration-and-global-capital-goodreads.html

Teacher strikes blanket the nation as a labor of love meets economic hardships [feedly]

Teacher strikes blanket the nation as a labor of love meets economic hardships
https://www.epi.org/blog/teacher-strikes-blanket-the-nation-as-a-labor-of-love-meets-economic-hardships/

School districts around the country, faced with a historic shortage of teachers, should be scrambling to offer those educators higher pay and better working conditions. That's what the economics of supply and demand would dictate.

Instead, we are seeing a spread of teachers' strikes and protests, with Denver and Oakland among the latest in a series of protest waves spreading from West Virginia to Los Angeles.

The gap between the estimated number of additional teachers needed in U.S. public school classrooms and the number that are available to be hired grew from zero to over 110,000 in just the last few years.

What gives? The lack of reaction from policymakers shaping the education landscape is emblematic of a broader disrespect for teachers as professionals over time. Teachers face a curious social situation—clearly and deeply needed but demonstrably undercompensated and poorly supported at work. The spate of recent strikes suggests conditions have reached a breaking point as teachers are forced to take on second and third jobs to make ends meet, and to spend money out of their own pockets to supply classrooms.

Our new analyses for EPI suggest that breaking point is here. This week, we released the first in a series of reports on the growing teacher shortage and the working conditions and other factors behind it. Our research shows that, when we account for the shrinking share of teachers who hold credentials associated with more effective teaching, especially in high-poverty schools, the teacher shortage is worse than estimated. The reports of the series will also show that low relative pay, tough working conditions, and a lack of supports for teachers aren't isolated problems in a handful of districts but challenges being reported by teachers nationwide. The depth and breadth of the crisis shows that the education industry—i.e., the nation's state and local departments and boards of education—urgently need to rethink how they cultivate, train, recruit, and support teachers.

While teaching has long-required forgoing the additional income that teachers could earn if they pursued other careers with similar educational requirements, that income loss has grown substantially in recent years. As our colleagues Larry Mishel and Sylvia Allegretto have shown, in 1994, the pay gap between public school teachers and their comparably educated peers was negligible: teachers earned only 1.8 percent less in wages. In 2017, the teacher pay gap was 10 times that, 18.7 percent. Even accounting for teacher pensions and other benefits, which are often cited as substantially boosting educators' real compensation, the compensation gap is still large, 11.1 percent in 2017. It should come as little surprise, then, that fewer people are choosing teaching as a career and more teachers are leaving.

That kind of situation is never good news. But at a time when the number of students who need teachers is growing, and when those students are more ethnically, racially, and linguistically diverse than ever before, but also more disadvantaged in terms of poverty, it is extremely bad news. We should all be alarmed at the failure of our school systems and our country as a whole to support educators on the front lines who make it possible for students to thrive.

Teachers who successfully struck in Los Angeles earlier in the year illustrate both the scope and scale of the problem and point to first steps toward alleviating it. In L.A., the teachers rejected the district's initial offer of a raise and held out for smaller class sizes and more counselors, nurses, and librarians—resources that should not be considered "extras," but guaranteed. Their emphasis on conditions in schools as well as pay is a sign both of the sorry state in which teachers try to do hard jobs well, and of the low pay they receive to work in those circumstances. But their victory offers hope.

And more change is coming. The L.A. strike kicked off protests in Denver, Kentucky, Virginia, West Virginia (again), and Oakland. Denver teachers, long unhappy that their salaries are contingent on student test scores, are now speaking up and walking off the job. Kentucky teachers protested a pension bill that would remove teachers from the nominating process for the pension board. In Oakland, soaring housing costs and resources lost due to the spread of charters, motivated teachers' walkouts. These protests build on the momentum of the wave of strikes that started in West Virginia just about a year ago and rapidly spread to Oklahoma, North Carolina, or Arizona. Those strikes shined a much-needed spotlight on some of the lowest wages and toughest working conditions for teachers in the country. But as we learn from teachers in districts in states that are relatively "high-paying" states, like California, even relatively "high-paying" states are far from providing what teachers need.

We hope that the series of papers we will publish in the coming months will boost that spotlight and accelerate the development of solutions. As we grapple as a society with rapidly growing income and wealth disparities, those on the front lines, teachers prominent among them, deserve a central place at the table where policy solutions are discussed.

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Enlighten Radio:Recovery Radio: The Wake Up Everybody Show

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Blog: Enlighten Radio
Post: Recovery Radio: The Wake Up Everybody Show
Link: http://www.enlightenradio.org/2019/03/recovery-radio-wake-up-everybody-show.html

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