[Vision2020] Grand Old Parity

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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February 26, 2013
Grand Old Parity By SHEILA C. BAIR

WASHINGTON

LAST month Emmanuel Saez <https://www.econ.berkeley.edu/faculty/852>, a
celebrated economist at the University of California, Berkeley, issued
another depressing report on income
inequality<http://www.nytimes.com/2013/02/16/business/economy/income-gains-after-recession-went-mostly-to-top-1.html>.
Among other things, Mr. Saez examined how real family incomes changed in
the United States from 2009 to 2011, the first two years of the recovery.
The richest 1 percent of Americans, he found, saw their incomes grow, on
average, by more than 11 percent. As for the other 99 percent? You guessed
it: incomes shrank by nearly half a percent.

The phenomenon is hardly new. The yawning gap between rich and poor has
been growing since the 1970s and reached a 90-year peak in 2007, just
before the financial crisis. The Great Recession narrowed the gap a bit,
but now, once again, the richest Americans are vacuuming up what wealth is
out there, a trend that Mr. Saez expects to continue.

I am a capitalist and a lifelong Republican. I believe that, in a
meritocracy, some level of income inequality is both inevitable and
desirable, as encouragement to those who contribute most to our economic
prosperity. But I fear that government actions, not merit, have fueled
these extremes in income distribution through taxpayer bailouts,
central-bank-engineered financial asset bubbles and unjustified tax breaks
that favor the rich.

This is not a situation that any freethinking Republican should accept.
Skewing income toward the upper, upper class hurts our economy because the
rich tend to sit on their money — unlike lower- and middle-income people,
who spend a large share of their paychecks, and hence stimulate economic
activity.

But more fundamentally, it cuts against everything our country and my party
stand for. Government’s role should not be to rig the game in favor of “the
haves” but to make sure “the have-nots” are given a fair shot.

President Obama, who has rightly made income inequality a signature issue,
cannot be pleased that the über-rich have gained under the policies pursued
by his administration, while the bottom 99 percent have not. Unfortunately,
his economic team, populated by acolytes of the former Treasury secretary
Robert E. Rubin, has relied on the same “growth” policies that got us into
trouble precrisis: generous treatment of the financial sector and easy
money from the Federal Reserve. These strategies have done little to
encourage sustainable economic growth, but they have worked wonders to
increase Wall Street profits and inflate the value of stocks and bonds —
which are disproportionately owned by the rich.

Why haven’t Republicans made an issue out of this? No doubt some fear that
discussing it openly would catalyze support for redistributionist policies,
which are anathema to a party that prides itself on increasing the pie, not
redividing it. But there are other policy options to demonstrate
Republicans’ commitment to the average Joe and Jane that are very much in
the party’s tradition.

For instance, as part of renewed fiscal discussions over sequestration,
Republicans should put fundamental tax reform on the table and make it our
priority to end preferential treatment of investment income, which lets
managers of hedge funds pay half the tax rate of managers of shoe stores.

Defenders of this giveaway make the unsubstantiated claim that it
encourages job-creating investments. But what we have now is merely an
immense pool of investment funds that has created far too few jobs. A
report<http://www.bain.com/publications/articles/a-world-awash-in-money.aspx>last
year by Bain and Co. projected that by 2020 there will be $900
trillion in financial assets around the globe, chasing investments in a
real economy worth only $90 trillion in gross domestic product. Why in
heaven’s name do we need to keep a tax preference to encourage more?

If we eliminate this and other unjustified tax breaks, we can produce
enough new revenues to lower marginal rates and reduce the deficit,
according to both the
Simpson-Bowles<http://topics.nytimes.com/top/reference/timestopics/organizations/n/national_commission_on_fiscal_responsibility_and_reform/index.html?8qa>and
Domenici-Rivlin<http://bipartisanpolicy.org/library/report/domenici-rivlin-debt-reduction-task-force-plan-20>debt-reduction
plans.

Republicans should also put rebuilding the nation’s transportation and
energy infrastructure high on our political agenda. From Lincoln’s
transcontinental railroad to Eisenhower’s highway system, Republicans have
understood that investing in critical infrastructure projects creates jobs
and expands commerce.

And given that the Federal Reserve insists on giving us cheap money, let’s
use it for the benefit of the country by issuing long-term debt to finance
such projects and repay it over decades through dedicated taxes and user
fees.

Some may say I am tilting at the windmills of Tea Party orthodoxy in making
these suggestions, but I believe that most Republican politicians would be
sympathetic to them, if only they could overcome their fear of primary
challenges and the loss of Wall Street money. Having worked for Senate
Republicans in the 1980s, I remember a time when Republicans stood up to
special interests and purged the tax code of preferences for investment
income and other special breaks.

They managed to survive re-election by showing leadership, taking
principled positions and defending them vigorously. It’s time for the Grand
Old Party to return to those roots.

Sheila C. Bair<http://topics.nytimes.com/top/reference/timestopics/people/b/sheila_bair/index.html>,
the chairwoman of the Federal Deposit Insurance
Corporation<http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_deposit_insurance_corp/index.html?inline=nyt-orga>from
2006 to 2011, is the
author<http://books.simonandschuster.com/Bull-by-the-Horns/Sheila-Bair/9781451672480>of
“Bull by the Horns: Fighting to Save Main Street From Wall Street and
Wall Street From Itself.”


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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