Yes On Spreading Wealth Creation
The level and intensity of debate over the last four days has been impressive. While I have weighed in a few times already, I do feel compelled to draw out a couple of points from the Pro-Growth Progressive that have been the subject of some intense disagreement.
A Progressive View of Defining Progressive
One of the most common criticism of progressives is that we get so lost in our debates over specific policies that we either forget to talk about the values that motivate our policies or we simply throw the word "values" around without adding content. In Chapter 2 I decided to lay out my own definition what being progressive meant to me. My three values were economic dignity for those who took responsibility for their lives, the possibility of upward mobility, and the belief that no child should see their life opportunities diminished by the accident of their birth. First, when I say we should assure "dignity for those who take responsibility" I mean that we have a collective obligation to make sure anyone who works hard - or can't because of disability or family obligation -should not face poverty or devastating falls in their income after a lifetime of work. Second, by upward mobility I mean that through education, risk taking, and saving- every family should have a chance to better their condition in the US and even rise to wealth or high achievement. Finally, I believe that while we are a nation that is willing to allow people to achieve different economic levels based on ability, entrepreneurship, hard work, luck and often a combination of all four - our founding values are undermined when millions of children are born into circumstances that enormously diminish their chances in life by the time they are even in a place to make decisions for themselves. This is what I meant most by the notion that life outcomes should not be determined by the accident of birth.
In my book I say that "readers looking for a rigid definition of what it means to be progressive based on the historical roots of the Progressive era or the teachings of particular modern philosophers will be disappointed with the pages that follow. My definition is based on my own observations." Jamie Gailbraith was clearly disappointed and disapproving, writing as if he was the copyright lawyer for Progressive Inc. But why would someone, as one commentator noted, take such an ultra conservative, strict constructionist view of what it means to believe in progressive values in 2005? Agree with me or disagree with my definitions, but by all means lets breath life into the discussion over what values motivate who we are and who we are fighting for.
Why Are We Not Champions of Wealth Creation for Hard-Pressed Families?
While I respect Jamie, have enjoyed working with him in the past, and look forward to doing so more in the future, I just found very little I could agree with in his exchange with Jason Furman and me on wealth creation. Here is the status quo: we have enormous wealth inequality in our nation, we have a perverse, upside-down tax system that gives the most help to the most well-off and the least to the most hard-pressed working families, and we have historically low private savings. Yet some progressives seem almost offended by people like me who champion savings and wealth creation for moderate income Americans. I just don't get it. Yes, of course it is true that millions of Americans are struggling to pay bills. That is why my book calls for an expansion of the EITC, more pro-work incentives like child care and an increase in the minimum wage. But the notion that progressives should resign themselves to the position that those not firmly in the middle class are incapable of savings is misguided.
First of all, I strongly believe that a new commitment to encourage private low- and middle-income savings would increase net national savings. While tax incentives for the well-off do little to help - and may indeed hurt net savings - if we used incentives to leverage savings from those who are not putting anything away, we could spark a significant shift. I believe that we should pay for new initiatives, but even if the government borrowed to finance matching funds for a Universal 401K every dollar these matching funds leveraged in new savings would increase net national savings. Contrary to what Jamie implied, research does suggest that when you give people - even those with more moderate incomes - matching incentives (like most of us get from our 401Ks) and the ability to automatically deduct a small portion of money for their paychecks many will save more. Just to note a few examples:
* A recent study of moderate and low income H&R Block customers found that a 50% match on IRA contributions increased participation in savings accounts nearly five fold and increased average contributions seven fold.
* Ray Boshara of the New America Foundation has highlighted the promise matching contributions in his work on Individual Development Accounts--citing evidence that these matched savings accounts can boost homeownership and asset accumulation for the poor.
* Studies have found that automatically enrolling workers in 401Ks (requiring them to "opt out" of saving) can boost participation rates for low-income earners making less than $20,000 more than six fold.
To realize these benefits I propose creating a Universal 401K. This would give all Americans-- including the poor, those with moderate incomes, women who are in part-time jobs, that you have the hardest time savings--incentives for savings as great or greater than those for the well off. My Universal 401K would give lower-income Americans a 2:1 match -if they saved $500, the government would match it with $1000. More moderate income Americans would get $1 for $1 match. Since it might be too hard for some poor Americans to put away enough money to capitalize on these matching credits, we could consider providing the type of automatic starter funds that were part of President Clinton's USA Accounts proposal. We could further help by designing this incentive to encourage more employers to offer automatic deductibility, and expand automatic savings to tax refunds and the EITC.
Again, Jamie - wearing his copyright lawyer for economic phrases hat -- is upset that I use the phrase "flat tax" as part of the proposal for a "flat tax incentive for savings." Sorry I just don't get this complaint. Right now we have upside down incentives. The well-off get a 35% deduction - three times greater than someone in the 10% bracket gets. I propose that in addition to a Universal 401K that we have a 30% Flat Tax Incentive for Savings that is refundable . What is the problem with letting people know that in the context of savings incentives, making things flat is a step toward progressivity?
There is something that really bothers me about progressives, who anxiously await their 401K reports or check to see how their stock investments are doing, being so dismissive about policies to help those with moderate incomes build even small personal nest egg for a down-payment, a cushion in bad times, or a dignified retirement. Yes,, housing is the number one source of building equity for most families, but savings can help for a down payment and for a dignified retirement as well. Do progressives think that a Social Security check is enough for elderly retirees? If not, why should we not be pushing an aggressive wealth creation agenda for people falling through the cracks?
To realize these benefits I propose creating a Universal 401K.
That was the final word?
With that kind of nonsense you could almost make a protectionist of me if that's the only other alternative. As knuckle headed as protectionism it, I have more faith we'd eventually return to sanity after poorly conceived experiments in protectionism than I have faith a universal 401K would accomplish squat.
Extremely poor finish. I hope TPMC hosts another econ debate soon, and gets somebody realistic, with more sense (and spine) than to propose either protectionist pandering or that 401K nonsense.
November 11, 2005 4:37 PM | Reply | Permalink
"First of all, I strongly believe that a new commitment to encourage private low- and middle-income savings would increase net national savings"
Let's unpack the hidden assumptions. First and most obvious is that the low and middle income earners have a responsibility to "increase net national savings". Why? And this is not an unserious question, in an era where Ken Lay has multiple homes in Vail, we could raise some serious incentives to increase "net national savings" by some return to the Luxury Tax, familiar to all players of Monopoly but apparently invisible to the DLC crowd. You want to buy that Bentley? Fine. But prepare to hand over a big chunk of cash to Uncle Sam. Back in the day rich people had a choice: spend on expensive items and hand over a big chunk to the Treasury or invest that money. And guess what? Absent the Luxury Tax they choose to spend lavishly. You think Dennis Kozlowski would have paid $6000 for a shower curtain, and put it in the maid's bathroom if he had to pay Luxury Tax on it? $6,000 for a shower curtain? That's really cleaning up A suggestion that we should reimpose a tax based incentive against frivolous spending by Paris Hilton would probably induce apoplexy today to self styled "progressives" as Gene or Alan, but as Willie Sutton stated when questioned as to why he robbed banks "that is where the money is". Solving the "national savings" "crisis" from the bottom up is not progressive. Some people need to embrace, and then unleash, their Inner FDR.
Second there is some weird assumption built in that "wealth creation" is an automatic good, that diverting spending on your kids today so that your grandkids can summer in a beach house in the Hamptons is so blinding a reality that we should all be buying shades. Why? And once again that is not an unserious question. Investing in your kids while they are growing up, launching them on their life path, and then living a comfortable life while dying with zero assets has been pretty much the human dream since humans were foraging for leaves in the Olduvai Gorge. Who exactly died and decreed that the "Ownership Society" was the end-all and be-all of life? Because you can read and re-read the Sermon on the Mount and come up with nothing on that score.
November 12, 2005 3:12 AM | Reply | Permalink
Mr Sperling is an example of that class of Democrats who deeply infuriate the voters --because their hypocrisy and deception is as bad as the Republicans. Why is it that their Technocratic plans always turn out to be a con job?
George Bush has destroyed Social Security and Medicare -- and Mr Sperling and the Democratic leadership remained silent /failed to warn the country while Bush did it. That's because Democratic leaders have rich supporters who wanted income tax cuts just as much the Republican.
What Mr Sperling doesn't mention is that anyone who puts money into a 401K
or IRA today is a moron-- because future withdrawals from the "before tax" deposits of such accounts will be taxed at 60%+ by future governments. That's the only way future governments will be able to pay off the Reagan/Bush1/Bush2 IOUs and write Social Security/Medicare checks.
Mr Bush --with the assistance and consent of the Democratic leadership --has ensured that middle class 401k/IRA savings are toast. Mr Sperling was silent while that was going on, so why should we give him a respectful hearing now?
The wealth of the superrich is protected from government taking by the Fifth Amendment. However, the Democrats somehow failed to protect the wealth
that their base supporters --blue collar workers, union members, and other workers -- have poured into Social Security and Medicare over the past 40 years.
We were told that we had accounts -- but NOW we are told that those "savings"
are really just promises which the government can change at will.
A look at George Bush's recent budget shows that the federal debt in 2008 will be $9.9 TRILLION --$3.8 Trillion more than what he promised just just a few years ago in Feb 2001. Roughly $4+Trillion of that debt is worthless IOUs held as "assets" by our Social Security accounts.
Supposed a Banker borrowed $200,000 and gave you a bond. Suppose you went to cash that bond 10 years later and discovered that the bond said YOU -- not the banker -- went on the hook to pay $200,000 back to yourself. Wouldn't you think the banker was a crook? Yet that is what Bush has done with our Social Security savings -- while Mr Sperling and the Democratic Leadership said nothing.
November 12, 2005 6:14 AM | Reply | Permalink
November 12, 2005 1:41 PM | Reply | Permalink