A Glossary of (Real) Change

 

            The current clusterfuck does not lend itself to easy solutions. The tentacles of corporate influence reach so deeply into the halls of Congress that it is often a struggle to pass even the most mildly “business-unfriendly” legislation, no matter how obvious it seems (see “Campaign Finance Reform” below). However, many wonks, activists, and everyday people are busy thinking up ways to get our stalled economy moving again, to reign in our runaway financial sector, and to create a more equitable economy and a future that gives us all a fair crack at the pursuit of happiness. Below is a list of some of the proposed rules, laws, and ideas that they’ve come up with. You’ve probably heard of some of them already, but there might be a few you’re not familiar with. So check out these offerings, agree or disagree with them, and most of all, discuss them with your friends, neighbors, and anyone else who will listen. Occupy Wall Street is more than a list of demands, but that’s no excuse to ignore the concrete change that we have the opportunity to pursue.

 

Buffett Rule – This would establish a minimum tax rate for those making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-class taxpayers. Thanks to the fact that the super-rich make most of their money from investments that are taxed at a lower rate than salary, they often pay a tax rate that is substantially lower than the average American’s. This proposal has been supported by President Obama and is named for Warren Buffett, a billionaire businessman who has advocated higher taxes on the wealthy. (See also: Progressive Taxation)

 

Bush Tax Cuts, Repeal of – The tax cuts instituted during the administration of President George W. Bush disproportionately benefited the wealthy, failed to increase growth or create jobs, and caused the government to take on the levels of debt that are now used to justify the “necessity” of slashing spending on needed services. They were set to expire at the end of last year, but Congress gave them a two-year extension. Restoring the Clinton-era marginal tax rates on income above $250,000 a year (leaving rates intact for income up to that level) would raise more than $700 billion of revenue over ten years. Former Federal Reserve Chairman Alan Greenspan, President Barack Obama, and countless others have supported repealing these tax cuts.

 

Campaign Finance Reform – Corporate money plays a huge role in political campaigning. Since the US Supreme Court struck down the provisions of the McCain-Feingold Act in the controversial Citizens United decision, corporations can effectively spend as much money as they want in political advertising. The dependence of politicians on corporate donations for increasingly expensive campaigns and the cozy and overly-sympathetic relationships that often ensue stack the deck against any legislation that might harm the most powerful corporate interests (i.e. most of the proposals in this glossary). The right-leaning Supreme Court has made it tough to outright restrict donations, but proposals that utilize public funding and tighter regulation of lobbying could help water-down corporate influence.

 

Carried Interest Loophole, Closing of – Managers of financial partnerships like hedge funds and private equity funds receive most of their pay as a percentage (usually 20% or more) of the profits they make for investors. Thanks to the carried interest loophole, this money can be taxed at the 15% rate of long-term capital gains rather than the 35% rate of personal income. The White House seeks to close this loophole, and estimates that doing so could raise $20 billion in revenues from the highest-paid and least-productive people in finance. While we’re at it, we can repeal the part of the Bush Tax Cuts that lowered the capital gains tax in the first place.

 

Corporate Criminals, Prosecution of – Three years after the economic crisis of 2008, not a single high-profile member in the financial sector has been prosecuted despite that sector’s substantial culpability in the disaster. This stands in marked contrast to the savings and loan scandals of the 1980s, in which more than 800 bank officials received jail time. In addition to serving the interests of justice, many contend that aggressive prosecution could serve as a deterrent to future corporate malfeasance. However, others believe that an overemphasis on the trials of so-called “bad apples” can distract from the need to fundamentally redesign the system that enables bankers (whether evil or just incompetent) to cause so much harm.

 

Delayed Compensation – Currently, Wall Street pays bonuses based on recent performance, giving executives huge bonuses for short-term profits without any penalties for losses. It is therefore in the interests of individual bankers to push for bigger deals and riskier bets regardless of whether or not they are healthy for their company over a longer timeframe. Congress could legislate that executives receive company stock that cannot be cashed in for a given waiting period, say, two or three years. Executives might then have a stake in the long-term success of their company, not just in their own immediate gain, and a reason to control the risks their employees take.

 

Dodd-Frank Act, Successful Implementation and Enforcement of – There is no shortage of things wrong with our banking sector, and in the future, there will be different problems that take different forms. A lot of the proposals in this glossary tackle one part of the problem, be it excessive risk-taking, excessive pay, fraud, moral hazard (too big to fail), political influence, proprietary trading, and the over-levered and unregulated “shadow banking” system. The Dodd-Frank bill has given regulators much of the task of figuring out what needs to be monitored and changed, and how to do it. They have the power to directly control some of the most dangerous parts of banking by limiting the amount of leverage financial actors can take, expanding regulation to include hedge funds, increasing the transparency of derivatives markets, etc. These rules are still being defined and implemented, and it is crucial that banks don’t hijack the process.

 

Financial Transaction Tax – A tax levied on specific transactions, especially the exchange of stocks, bonds, derivatives, and currency. Supporters believe that this kind of tax could curtail reckless trading while simultaneously raising revenue. Reps. DeFazio (D-OR) and Harkin (D-IA) are sponsoring a bill to establish such a tax. The UK already has 0.25% tax on each side of stock transactions, though even the lower rates proposed in the US could curb the worst kinds of trading and raise revenue at the same time. The tax has been proposed as a way of funding development in the Third World or as a source to pay for recent and future bailouts, but could be used for any purpose.

 

Gramm-Leach-Bliley Act, Repeal of – This act allowed for the consolidation of commercial banks, investment banks, securities traders, and insurance companies. These companies were formerly prevented from merging under the provisions of the Glass-Steagall Act, enacted during the Great Depression. A repeal of Gramm-Leach-Bliley would break up the corporations that were “too big to fail” in 2008, and help undo the over-concentration that makes the failure of any one firm dangerous to the whole system. (See also: Volcker Rule)

 

Infrastructure, Investment in – The bulk of American infrastructure, from roads and train tracks to water pipes and the electrical grid, was built many decades ago and subsequently neglected. Regardless of the state of the economy, we urgently need to fix crumbling bridges and schools, and build the new infrastructure that we will depend on for the future movement of people, goods, and ideas. Delay will only make the problem more expensive. Right now, the government can borrow money nearly for free (a 10-year rate of 0% after inflation). At the same time, our blue-collar workers who took the hardest hit from the collapse would be put back to work, and the entire economy would receive an influx of an additional $1.50 or more for every $1 spent. The White House’s proposed American Jobs Act includes $50 billion for infrastructure and $10 billion to create a National Infrastructure Bank. This is a good start, but more, and sooner, would be better.

 

Mortgage Reduction – In some states, as many as half of homeowners are now underwater on their mortgages. If they could refinance with balance reductions that reflected the current value of their homes, not only would the homeowners have more money to spend on the things that keep the economy running, but lenders would actually have a more secure future stream of income since they would be pushing fewer people to default. The Obama administration has tried to create programs to encourage these loan modifications and mortgage companies are starting to realize this is in their own best interest, but so far these reductions have been slow to happen. Laws could be created and strengthened to give the banks the incentive to take action and to create pressure for Freddie and Fannie to provide debt relief.

 

Mortgages, Walking Away From – With progress toward Mortgage Reduction being slow and uncertain, homeowners have the option of walking away from their mortgages. When your mortgage debt is larger than the value of your property and refinancing is not an option, defaulting can be your best bet. Defaults, it turns out, don’t harm a homeowner’s credit (the harm’s already been done from missed payments and the bad situation that got you there).  Strategic defaults can be emotionally taxing, but in the long run, they can be to your benefit. (For more information, visit http://www.youwalkaway.com/.)

 

Progressive Taxation - It's not just that wage growth for the top 1% has outpaced that of the bottom 99. The majority of us saw our incomes stagnate or decline during a decade that saw those of each level of the elite (the 1%, the 0.1%, the 0.01%) grow exponentially faster than the one just below it. Even after accounting for taxes, this picture remains as starkly unequal, and our low levels of social mobility make it worse. There are a lot of reasons (technological change, stagnating educational attainment) why income inequality has increased in the developed world, but the American case is especially severe, and our tax system deserves part of the blame. An additional dollar of income to a high-earner provides a smaller increase in well-being than it does for a low-earner, so a progressive tax rate doesn’t mean the upper class are “hurt” more. A tax dollar spent on a vital service is more socially valuable than one spent on a luxury good or invested in a hedge fund. Progressive taxation is not just more efficient; it shapes the fundamental justice of our society.

Federal income tax rates are lower than they were under Reagan, and our tax code doesn’t recognize any difference between someone who makes $400,000 a year and someone who makes $400,000,000. The full picture, with payroll taxes charged only on the first $106k of income, sales taxes that disproportionately impact those with lower incomes, state income taxes that are flat or barely progressive, and the extent to which the wealthy earn their income under the guise of capital gains, demonstrates that the rich are barely paying a higher rate at all.

We need additional tax brackets for higher income levels, and we need higher tax rates at these levels. The Obama administration has proposed the Buffet Rule, which is a good start. But the focus on millionaires can be distracting. A real discussion of taxes means acknowledging that $250,000 per year isn't middle class; it is five times the nation’s median income. It means acknowledging that a 10% tax increase on the last million or billion dollars of income goes down a lot easier than even a 2% increase paid by the average worker. It means acknowledging that the government provides us with useful services that everybody—even and especially the very wealthy—benefits from and has a moral obligation to support.

 

Revolving Door, End to the – The “revolving door” refers to the movement of people from jobs as legislators and regulators into roles in industry and lobbying, and vice versa. The upside is that the system is regulated by those who know it best. The downside is that people often have a sympathetic view of industries they’ve worked in, and worse, regulators can often secure better-paying jobs from an industry as long as they treat it favorably while in office. Legislation that shrinks the gap between regulators’ salaries and the private sector’s, stronger rules that make regulation meaningful, and prohibitions on “revolving door” employment for at least a few years after government employment can decrease such conflicts of interest and strengthen regulatory agencies.

 

Stimulus (Fiscal) – When times get tough, families tighten their belts and cut back on spending, and, the prevailing wisdom says, so should the government. This couldn’t be more wrong. Every dollar you spend goes toward somebody else’s income. While it makes complete sense for you to cut back when times are tough (especially when nobody’s willing to give you credit), when everybody is doing this, everybody’s income drops and then everybody has to cut back more. If I decide to start spending more (supposing I can at all), that won’t help unless we all agree to do it together, which is almost impossible to coordinate. If the government steps in and buys things (like new, non-crumbling bridges!), people who make the things the government is buying can afford to spend a little more, the people who make the things that those people buy have more cash, and banks become more willing to lend to people. The economy starts to pick back up.

There is a lot of argument about what the government should spend our money on. Infrastructure, not firing (or even hiring!) teachers and other much-needed public workers, lending to small businesses, and unemployment insurance are all good ideas. Not only are they worthwhile goals on their own, but each of these expenditures is likely to contribute to restarting the economy.

 

Stimulus (Monetary) – The Federal Reserve is the most important and powerful tool in recovering from an economic collapse. In normal times, it can stimulate the economy by lowering the nominal interest rate. At lower rates, more people (and projects) can get loans, more economic activity results, and unemployment falls. Today, the Fed rate is at zero. However, many “unconventional” options, like inflation or NGDP targeting, remain. These would let the Fed accomplish the same goal of easing monetary policy, but through different channels. The risks of misfiring are low, and continued high unemployment threatens large and long lasting economic and social costs. For more information, see “Mend the Fed.”

 

Student Loans, Reform of – Two-thirds of students graduating with a bachelor’s degree leave school with loans to repay. The average debt among graduates is around $23,000. Unlike other kinds of debt (such as credit card debt), student loans are not washed away if the borrower declares bankruptcy. As tuition rates rise and unemployment for recent grads remains at historic highs, some critics, including the New York Times editorial board, have pushed for student loans to receive bankruptcy protection. Others, including Rep. Hansen Clarke (D-MI) and Dennis Kucinich (D-OH), advocate outright forgiving of student debt, arguing that this would provide relief for millions of Americans and free up substantial money for consumer spending. In the long-run, we need to turn our focus towards making college educations more affordable, and we need to improve our entire educational system to increase social mobility and better position our population to gain from, and contribute to, the changing economy.

 

Unemployment Insurance, Extensions and Increases of – Before we rose up and recognized ourselves as the 99%, there was another group of 99ers. When the crisis began, the government extended unemployment insurance (UI) to a maximum of 99 weeks, anticipating that the recovery could be long and slow. By the time these people’s benefits ran out, things were looking no better, and Congress’s failure to pass extensions has meant that people fired later in the crisis have had benefits run out even sooner. Unemployment insurance helps us to maintain spending when layoffs begin and is therefore a valuable tool in limiting how severe a downturn can get. By enabling people to continue making their loan payments, put food on their tables, and maybe even get the training for a new job or move to a place with more opportunities, UI both helps the economy and preserves a person’s basic human dignity. Providing benefits might enable someone to pass up bad job offers and wait for a better one, but given the fact that benefits are small and temporary, with seven unemployed people for every job opening, it’s not as though we have legions lazing on the couch, “abusing” the system. Right now, we could pass extensions that allow people to continue receiving checks so that they can buy food, have a place to live, see doctors when they are sick, and keep their lives sufficiently together so that they can actually look for a job. Even better, we could increase these payments or let people collect their benefits in one lump sum to provide the increased financial stability that gets their lives and the economy back on the right track.

 

Volcker Rule – This is a proposed restriction that would prevent banks from trading for their own gain, a practice that often conflicts with the interests of clients while endangering the economy. Banks at the center of the financial system have access to cheap Federal lending, meant to smooth out overnight mismatches between deposits and withdrawals. Banks abuse that system when they use it to finance this “proprietary” trading, and add fuel to the fire of a speculative bubble. When these over-leveraged and over-priced investments lead to losses at the megabanks—as they did on an enormous scale during the 2008 financial crisis—the risk of one bank failure threatens the entire banking system (and economy) with failure. These “too big to fail” banks require government bailouts. The rule is named after the former Federal Reserve Chairman Paul Volcker who believes that this kind of trading was key to causing 2008’s financial collapse.

 

War in Afghanistan, End to the – Economics might not be the first, second, or even third reason why we should bring home the troops in Afghanistan, but it’s certainly a reason. Estimates for the total cost of the Iraq and Afghanistan wars and related expenses range from $3.7 to $4.4 trillion. These are dollars that could and should have been spent on schools, roads, healthcare, and social programs. Ending the conflict now, and cutting defense spending to better reflect the fact that we are fighting terrorism (not the Soviet Union), would free up hundreds of billions of dollars that are much needed at home. (For more information, visit http://costsofwar.org/.)

 

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