Tuesday, January 22, 2008

It's The Economy, Candidates!

After years of the war in Iraq and national security being at the top of voters' concerns, suddenly "it's the economy, stupid!". Strange, because if you believed the Republican noise machine the economy was doing just fine until yesterday. Good, because after you discount economic indicators that have little or no impact on common folks, the economy is indeed a problem (and the war in Iraq plays a role in it, but the problem's much larger).

Of course, a serious discussion of the nation's problems would have to begin with the biggest problem we face currently: unchecked corporate power. If companies and the wealthiest individuals did not *own* (not just run) the system, the problems that ail middle and low income earners would be much less dramatic. Companies would pay a fair share of taxes, the people who run them would be taxed at a rate proportionally higher than the rate at which workers are taxed (and without the loopholes), and corporate socialism (as David Cay Johnston and Paul Krugman correctly call government handouts to corporations that do not need it, like pharmaceutical companies, oil companies, agri-business, etc.) would to be eliminated. But, in an election year (or ever), no politician wants to tackle the corporate powers that paid for them, so the discussion moves by default to helping those who are struggling the most economically and how to revive the economy. Unfortunately, the typical solutions proposed by politicians are mind-numbingly trite and and fail to bring about any meaningful relief to those who need it most. The Republican strategy is the same old recipe of tax rebates and tax cuts that do nothing to help low- and middle-class earners, and benefit almost exclusively those who don't need them. The Democratic strategy? You tell me.

If politicians were really serious about helping the middle-class and those who live paycheck to paycheck, they would try the following:

  • Make credit card interest tax deductible for anyone making less than $100k a year (with higher limits for people living in high cost urban areas). Credit card interest was deductible until 1986, when Congress passed the Tax Reform Act to disallow these deductions. The logic, according to the U.S. Treasury website, was that "[a]t the time, the American savings rate was declining and […] to eliminate the significant disincentive to savings, Congress repealed the itemized deduction for personal interest other than mortgage interest." How did that work out for you? As we know, purchasing power has not kept up with inflation over the past 20 years, so people are still not saving enough (or at all) and credit card use as become a necessity for many (to pay, amongst other things, for medical expenses, car repairs and maintenance, bills and even groceries). Reinstating the deduction, at least for people making less than $100k, would be a significant help to middle-class families and to the economy. (This measure does not even begin to tackle the main problem, which is the usury-high rates charged by lenders for credit cards).
  • Make all dental expenses tax deductible, and make all medical expenses tax deductible as well (currently, only medical expenses in excess of 7.5% of a taxpayer’s adjusted gross income, or AGI, are tax deductible). This should be fair because most medical expenses are not elective.
  • Since the cost of gasoline has risen so significantly since George W. Bush took office, give tax credits to people for the cost of transportation to and from work. For fairness, and to help the environment, which is another thing almost everybody agrees on, the credit should be proportional to the used vehicle’s consumption (higher credits for vehicles that give better mileage, or for public transportation). Tied to this, significant incentives should be given to new car buyers who make the transition to vehicles with better mileage.
  • Lock the rate on student loans to the rate of inflation plus a percentage point, and federalize all student loans.
  • Allow a one-time deduction for mortgage holders, equal to the difference between the outstanding balance on their loan and the current valuation of their property.
  • Institute a company-funded federal fund for people who lose their job to outsourcing. These funds would be used to cover unemployment costs, for up to two years, to the tune of 50% of the outsourced employee's pay rate at the time of termination. This federal fund should be supplemented with fines paid by companies who are caught repeatedly hiring illegal aliens.
  • Eliminate capital gains tax for taxpayers that do not exceed $200,000 a year, provided that the investment is in companies headquartered in the United States. This should provide an additional incentive for investors and provide a boost to American companies.

These are just a few examples of how people could be helped in meaningful ways, if the political will to do so existed. Anything less is election-year hot air.

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