The Following is a Review of Chapter Four of Bill Bradley’s “The New American Story”
In chapter four, dedicated to the economy, the former Senator spells out all that ails the American economy and that which could spell its doom. And there is plenty to focus on.
First and foremost, Bradley laments the fact that the U.S. has become the world’s biggest debtor nation. He warns that our large budget and trade deficits, combined with the lowest personal savings rate in the industrialized world (outside of Australia), portend a grave danger to our nation.
Of particular significance, Bradley notes that current and future government obligations amount to half a million dollars for each U.S. household. And the personal debt of millions of Americans only compounds the problem.
The solution, according to Bradley, is savings and investment. The lack of national savings, he notes, has made it necessary for our government to borrow massive sums, leaving less capital for the private sector. Eventually that demand will push up interest rates and the economy will stagnate.
The lack of savings requires our government to borrow $2.3 billion every working day to finance our debts. It’s a number that is truly shocking. Equally shocking is the amount of resulting interest our government pays to foreign creditors. At present, foreigners own half of America’s $4.2 trillion in debt.
Wealth inequality is another of Bradley’s concerns, particularly the shrinking of the middle class. Bradley says the gap between rich and poor has never been greater in the U.S. The bottom 40 percent or working America earns less than $24,960 annually. And while productivity has risen, most workers haven’t benefited.
Another shocking note; in 2004, for the first time since the early part of the last century, the U.S. was not among the top five per-capita-income countries.
Unfortunately, individual Americans, like their government, are living above their means. Household debt, as a percentage of GDP, is at the highest level in our country’s history. Case in point; one in five new homeowners by mid-2005 had a mortgage that consumed half their disposable income. Historically, that number was 25 percent, and many financial planners now view 30 percent as acceptable.
But Bradley doesn’t just point out America’s economic problems – he provides solutions as well.
Bradley acknowledges the need for economic growth, and the importance of appropriate or acceptable levels of employment, inflation, and productivity. But he also suggests the importance of quality of life for all Americans.
According to Bradley, economic growth must focus on the legal system, the social system and the national defense. These, he notes, are the foundations for a stable, safe, healthy and vibrant nation.
Investment in education is the bedrock of our nation’s strength and its future, says Bradley. With that in mind, he recommends that any American high school student in the top third of his or her class be granted a free public college education. That is a noble goal, indeed.
But to reach such a noble goal, the country must maintain strong economic growth. And to achieve that, the government must also maintain reasonable tax rates so that investment capital will “continue to fuel new ideas, new businesses, new jobs, and more economic growth.”
Much of our economic growth will be fueled by small business, according to Bradley, since “entrepreneurs are the secret ingredient in our economy.”
But maintaining, or increasing, economic growth will require a major commitment to deficit reduction. In order to increase national savings, the amount of spending directed toward the federal deficit must be substantially reduced.
Bradley says that reducing the deficit will generate more capital at lower interest rates, thereby increasing investment and ultimately promoting greater economic growth.
To reduce the deficit, the focus will have to be on the biggest sources of spending; defense, healthcare, and programs for the elderly. Without a significant change, Bradley warns, in just nine years these programs will eat up 88 percent of the budget.
To give an idea of the size of the problem, Bradley uses this illustration; the U.S. presently spends nearly as much on defense as all of the other countries of the world combined. It’s makes for a rather breath-taking consideration.
The Senator takes care to note that “the elderly must contribute to the solution of our budget deficit without the most vulnerable among them being endangered.”
That may be easier said than done, since he himself notes that “some 30 percent of the elderly get 90 percent of their income from Social Security.”
To achieve these savings, Bradley contends that Social Security must be further reformed. His suggestions: the retirement age must be raised to 70 by 2099; 2 percent of the 6.2 percent Social Security tax must apply to all income and not be capped at the current $94,200; bring all new state and local government employees into the system; and change the way that annual cost-of-living increases are calculated.
His fixes for the healthcare system rely primarily on competition that measures results and cost. In the long run, he says, solving the healthcare problem will likely require a combination of reform, tough regulation, and increased choices.
Ultimately, all hope for future economic growth and stability, says Bradley, is linked to reducing expenditures, such as earmarks, but will also require the raising of taxes – specifically on the wealthy.
Bradley notes that if all Americans had a clear idea of the magnitude of our looming economic problems - related to our debt - most would be wiling to go along with specific tax hikes.
But Bradley doesn’t just want to raise taxes on the wealthy -- he wants to reform the tax system. He claims that the current system is unfair since equal incomes don’t pay the equal tax. He also says that the system is inefficient, overly complex, and wrought with fraud.
To solve these problems, Bradley suggests cutting tax rates and eliminating “most of the $1 trillion in individual and corporate tax loopholes.” Doing so, he says, would simultaneously keep more money in the pockets of all Americans and help disable the special interests, the groups whose very existence relies almost entirely on favorable tax laws, or breaks.
Specifically, Bradley suggests just three tax rates of 10, 20, and 30 percent. All deductions would apply only to the first two rates. Taxpayers in the highest bracket would still get their write offs, or deductions, but they would only apply at the 20 percent rate.
“I believe that the best tax rate is the lowest tax rate for the greatest number of Americans,” writes Bradley.
The Senator recommends that if taxation were fixed between the Regan era level of 8 percent of GDP and the Clinton era level of 10.3 percent, the revenue raised could, along with spending cuts, solve our fiscal problems.
“By eliminating most of the tax deductions, exclusions, and credits (now worth $911 billion), we could reduce rates, make the system fairer, and raise revenue,” Bradley asserts.
It all sounds like a mighty fine idea, but would it work? There is no doubt that such a proposal would run up against the extraordinary power and will of the various special interests who like the system just as it is.
But, as Bradley notes, the current system simply isn’t fair or workable in the long-term.
The Senator references Princeton economist Paul Krugman. According to Krugman, 40 percent of the benefit from George W. Bush’s tax cuts flows to taxpayers with incomes over $341,000, and 53 percent goes to the top 10 percent of taxpayers. Furthermore, the professor says that the tax cuts going to the top one percent of American taxpayers exceeds what the government spends on elementary and secondary education and homeland security combined.
Bradley believes that the entire budget process should return to the pay-as-you-go rules that existed in the ‘90s, under which tax cuts were matched with compensatory spending cuts. The Senator also suggests that the entire federal budget be made available on the Internet. This, he says, would provide information and transparency to the public so it could see how its tax dollars are raised and spent.
It’s a very democratic, “for the people” idea, but it’s hard to imagine many folks actually reading, much less understanding, such information.
Bradley goes into the specifics of his proposals in the final pages of the chapter. He’s a learned and academic man, and most of his facts are supported by reliable sources and substantiated by careful research.
Bradley seems genuinely concerned and presents his proposals as common sense. In all, his is a sobering warning that we must take stock of our current fiscal circumstances and make immediate course corrections to preserve our economic well being and way of life.
The essence of Bradley’s message seems to be this; we must change the tax system and reduce spending in order to promote the necessary investment in our future that will lead to greater economic growth, further savings, and further investment.
Sean M. Kennedy, Money Correspondent:
Sean is a freelance writer based in Los Angeles.
Keep up with Sean’s other postings and Gather activity by joining his Gather network at www.skennedy.gather.com