Accelerating demand for “Made In America”
ONE OF THE BEST WAYS to incentivize Making More in America is to help create demand for Made in America. That’s simple economics. But it’s also a matter of fundamental fairness. When the government buys local, we’re keeping our tax dollars circulating here at home, working for us.
When citizens buy local, they’re giving back to their communities. And when we restore American buying power through greater economic equality, we’re making the American Dream accessible to everyone.
1 Require the federal government to buy more domestically produced products
The federal government has tremendous purchasing power and by many accounts, if it were to focus more on buying local, we could continue to grow the existing and strong niche manufacturing sector. Many federal grants contain Buy American provisions — it was a key feature of the American Recovery and Reinvestment Act. Constraining federal purchases to homegrown products, within limits, is one way of injecting a tremendous amount of capital into our manufacturing sector.
2 Encourage Americans to Buy American, at least once
Roger Simmermaker’s book, How Americans Can Buy American, outlines more than sixteen thousand affordable U.S.-produced and based products and services.1 He also goes so far as to offer an online resource listing where these products can be purchased in your community.2 While occasionally locally produced products are slightly more expensive, as Diane Sawyer’s Made In America challenge notes, “if every American spent an extra $3.33 on U.S.-made goods, it would create almost 10,000 new jobs in this country.”3 Buying American, when possible, is a way we can all give back now, without waiting for the great gears of the American bureaucracy to turn.
For readers who think this is a soft kind of policy — let me give an example of how this kind of “market making” is already working — in our food supply.
For the past decade local farmers, environmentalists and concerned consumers have been focusing on locally-grown, organic and sustainable foods. Many of us were educated to the need for such products by environmental groups and journalists like Michael Pollan and others. So we created a market for these products, and organic local farmers stepped in to fill it.
It is working — every day more of our food comes from local sources.
If we start to pay attention to where our goods are manufactured as well — and ask hard questions like, “What is the carbon footprint of bringing this to market?” and, “Did the worker who produced this earn a living wage?” we will start to make markets for more American goods.
3 Restore the buying power of the middle class: economic quality and tax fairness
We know American middle-class families have lost ground in this struggling economy. But the good news is that they can power America’s economic recovery — by buying what we are making in America again. First, however, our nation must confront a central barrier to restoring the buying power of the middle class: economic inequality.
From the Occupy Wall Street movement to the uproar over Mitt Romney’s tax returns, our nation is engaged in a renewed debate on economic inequality, and the statistics are sobering:
- Since 1979, after-tax income for the top one percent of households more than tripled, while increasing by only one third for the bottom 80 percent.4
- CEO compensation has approached 300 times that of the average worker.5
- The richest one percent of Americans in 2007 took home almost 24 percent of income, up from almost nine percent in the 1960s and 1970s.6
While the long-term causes of this widening gap in incomes are many,7 the Great Recession has focused the attention of policy makers, economists, business leaders and the pundits on one of the most devastating results: the massive shortfall in consumer demand that is holding back our economic recovery.
As President Obama said in a recent speech: “When middle-class families can no longer afford to buy the goods and services that businesses are selling, when people are slipping out of the middle class, it drags down the entire economy from top to bottom.”8
American middle-class consumers — already left behind as the most wealthy Americans increased their share of our nation’s total income — are now staggering from a toxic combination of high unemployment and underemployment, the evaporation of home equity and the hangover of huge debt as a result of the collapse of the housing bubble, or worse, the juggernaut of home foreclosures.
In addition to the other solutions proposed in this plan, we can make meaningful progress toward remedying income inequality and ensuring our capacity to invest in a prosperous future by reforming our tax system to make sure that everyone — including those who are fortunate enough to have made millions — pays his or her fair share.
President Obama has proposed making our tax system more progressive9 — and I agree.
That’s why Congress should take these four immediate actions:
Repeal the Bush tax cuts for those making over $250,000 per year
Though still the subject of debate, there is much evidence that the Bush tax cuts did not deliver what President Bush promised — not on job creation, not on economic growth, not on increases in middle-class income nor on improvement to the nation’s deficit.10
But there’s no room for debate on the cuts’ impact on economic equality — they’ve been a disaster. Data aggregated by the Economic Policy Institute11 show that in 2010, the top 1 percent of earners (i.e., tax filers making over $645,000) received 38 percent of the breaks from the 2001-08 tax changes. And the top 0.1 percent of earners (i.e., those making over $3 million) received an average tax cut of roughly $520,000, more than 450 times larger than the share received by an average middle- income family.
There are many reasons for repealing the cuts for the wealthiest two percent of Americans, not to mention a savings of approximately $700 billion over ten years.12 But making our tax code fairer is among the most important.
Observe the “Buffett rule”13 — those making over $1 million a year should pay the same rate as the average middle class family
Billionaire Warren Buffett made headlines last year when he authored an opinion editorial calling on Congress to “stop coddling the super-rich.”14
Buffett reported that he paid only 17.4 percent of his taxable income, lower than that of any of the other 20 people in his office, whose tax burdens ranged from 33 percent to 41 percent and averaged 36 percent. He called on Congress to raise tax rates on the wealthiest Americans and “get serious about shared sacrifice.”
This is no small problem. A recent report from the nonpartisan Congressional Research Service reveals the following facts:15
- One quarter of millionaires pay a lower tax rate (less than 26.5 percent) than 10 million middle-income Americans who earn less than $100,000 annually.
- There are more than 4,000 “ultra- millionaires” who earn more than $5 million a year and pay a lower tax rate (less than 23 percent) than 10 million middle-income Americans who earn less than $100,000 annually.
- More than half of taxpayers who earn between $100,000 to $200,000 pay a higher tax rate than 33,000 millionaires and 4,400 ultra-millionaires.
President Obama enshrined the “Buffett Rule” in his principles for tax reform: No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay.16
I agree and I applaud Mr. Buffett for stepping forward as a voice for fairness in our tax system.
Cap the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000
This proposed limitation, a feature of the tax reforms in the President’s plan, would return the deduction rate to the level it was at the end of the Reagan Administration.17
Adjust the preferential rate on carried interest, capital gains and maybe dividends
According to Tax Policy Center estimates, almost half of the benefits from preferential rates on carried interest, capital gains and dividends (15 percent maximum) go to the top one-tenth of one percent of households.18 Low- and middle-income households, by way of contrast, earn most of their income from wages and salaries that are taxed at much higher rates (a flat payroll tax rate up to a maximum and graduated income tax rates).19 They cannot benefit from these tax breaks like millionaires, nor can they exploit other tax loopholes and deductions like high- income households.
President Obama’s plan calls for taxing hedge fund profits, called “carried interest,” as ordinary income instead of the current 15 percent capital gains rate. I agree, but I believe we should also take a serious look at some adjustments to preferential rates for capital gains and perhaps even dividends.
Warren Buffett has argued eloquently for this type of policy shift:
“I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976- 77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.
“And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”20
The American Dream
These proposals are really about much more than buying power or big numbers — they are about restoring middle-class access to the American Dream. I grew up watching my father work hard and play by the rules. That’s not just a cliché for our family;
it’s a fundamental American value that allowed us to move into the middle class. By restoring economic equality, we can help every family in America benefit from the opportunities that mine did. It’s a goal worth fighting for.
6 Emmanuel Saez, “Striking it Richer: The Evolution of Top Incomes in the United States (Update with 2007 estimates),” (University of California, Berkeley, Department of Economics, August 2009), available at http://elsa.berkeley.edu/~saez/saez-UStopincomes-2007.pdf.
7 Josh Bivens and Heidi Shierholz, for example, list 6 policy changes that led to today’s vast concentration of wage incomes: (1) Labor law changes accelerated the decline of unions in the private sector – the more-insulated public sector saw unionization rates hold steady or even increase; (2) The purchasing power of the minimum wage was allowed to be eroded by inflation for almost decades-long stretches – resulting in a minimum today that remains far below its late-1960s peak in purchasing power; (3) Global integration with much-poorer trading partners occurred under a regime of trade agreements that provided detailed and firm protections for capital-incomes but none at all for labor-incomes in any country; (4) The financial sector was deregulated and began paying exorbitant rents to its most-privileged employees, who dominate the upper reaches of the wage-distribution; (5) Tax-rates on high-incomes were radically reduced; (6) The Federal Reserve let its mandate to pursue full-employment wither. It Takes a Policy Agenda, L. Josh Bivens and Heidi Shierholz, Economic Policy Institute, June 2011.
15 The Three Things You Need to Know About Millionaire Tax Rates, Sarah Ayres, Center for American Progress 10/14/2011, drawing from Thomas L. Hungerford, “An Analysis of the ‘Buffett Rule’” (Washington: Congressional Research Service, 2011).