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Income Inequality – American Democracy can do Better

  • brendagiven
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Federal Reserve

This discussion on income inequality is the second in a 5-part series that reviews potential solutions to change the course of our Democracy, toward high national alignment and contentment that also drives high economic growth. The series reviews ideas for a unifying national vision to address our most pressing problems; Washington, income inequality (including healthcare and immigration), natural disasters, physical infrastructure and education. 

Class mobility, the backbone of the American dream, is slowly dying as the increasing income inequality gap increases poverty, health crises and crime. The top 1% of American households earn 38 times what the bottom 90% earn. CEO pay has skyrocketed from 20-to-1 in 1965 to 303-to-1. Since 1989 the wealth of the top 3% of Americans grew almost 45%, while the wealth of the bottom 90% dropped 33%. The rich get richer, leaving less for those who aren’t rich, which reduces economic mobility.

And national economic data often masks zip codes of prosperity in a sea of stagnation. Forbes reports that 75% of venture capital is invested in only 3 states, (in only a handful of major cities) leaving the other 47 states to scramble for the remaining 25%.

The founding fathers believed democracy required a broad middle class with enough assets to sustain themselves and as little dependence on the state and others for their livelihood as possible. They considered broad-based property ownership as a necessary condition for reasonable taxes, small government and economic liberty.

How do we boost economic mobility for the large majority of Americans that struggle to make ends meet to ensure a strong middle class? Here are just a few ideas from a range of experts:

  1. Pay fair, living wages
    • The Haas Institute reports that a $10 minimum wage (currently $7.25 since 2009) would lift almost 5 million people out of poverty and add $2B to the nation’s real income without retarding employment or economic growth. However, in higher cost regions $10 is not enough – many West Coast cities have enacted $15 wage minimums.
    • Forbes suggests that companies share productivity and innovation gains with employees (in either cash or equity), not just shareholders, to lift compensation of those making less than $100,000 to strengthen the middle class.
  1. Spread the wealth
    • Reward businesses that offer profit and equity shares. Congress could use its purchasing power to buy from businesses that expand employees’ assets.
    • Incentivize retirees to sell businesses to employees. Government policy could encourage aging baby boomer business owners to sell to employees rather than private equity firms, liquidators or competitors that reduce jobs and further concentrate wealth.
    • Promote public-private citizens trusts. These trusts would acquire income-producing assets and use the income stream to pay a dividend to citizens of that state, similar to the Alaska Permanent Fund that now pays annual dividends to every Alaska citizen.
    • Give people ownership of their data so it can be used as an asset which they—not platforms such as Google and Facebook— can leverage to capture economic value.
  1. Invest in human capital
    • Affordable, accessible, quality education. A well-educated country is a capable, skilled, and well-off country; education is arguably the single most critical tool poorer segments of the population can use to ascend to the middle class and stay there. By 2025, 65% of jobs will require some sort of post-secondary education.
    • Worker retraining. Millions of U.S. jobs are expected to be eliminated by 2026 as a result of increasing automation and competition from emerging markets like China and India. The U.S. spends a meager 0.028% of GDP on worker retraining vs the 1.34% of OECD peer nations.
    • Affordable, accessible, quality healthcare. Workers with good health are more productive, more likely to be able to work longer and less likely to need government subsidies.
    • Savings credits or federal matching for retirement savings to build assets for working families.
  1. Make taxation more progressive
    • Close tax loopholes for the rich – capital gains rates in line with income tax rates and higher estate taxes.
    • Increase tax incentives for the working poor – Expand earned income tax credits, which have a positive impact on working families, esp. single parents, lifting roughly 4.7 million children above the poverty line annually. Add savings incentives structured as refundable tax credits.
    • Target tax subsidies for distressed regions, including vouchers to help families relocate to areas with more jobs.
  1. Create more public funds and financing
    • Expand access to capital. Increase small business loans in distressed regions. Offer inexpensive microloans to help aspiring entrepreneurs get up and running.
    • Fund infrastructure spending. Subsidize renewable power, which creates some of the best paying employment in the country. Invest in aging transportation and utility systems to create new well-paying jobs. Create universal broadband internet to enable rural businesses to participate in the increasingly digitized economy.
    • Recruit skilled immigrants to offset demographic decline in the 80% of American counties that are not growing. The most economically dynamic areas of the country have depended a great deal on immigrants for that success. Growing populations have strong home prices and public finances that attract businesses and lead to economic growth.
  • Join wethepeople.org. Get in on the ground floor of our crowdsourced democracy movement to bring together Democrats, Independents and Republicans to represent the common interest of all citizens. Your contribution empowers Americans to propose, refine and vote on common-sense political solutions and compete with special interests for political influence.

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Author: brendagiven

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