How the Green New Deal Could Work

Solving for inequality, pollution and global warming.

Solutions for a More Perfect Union. Version 1.53

Currently 50% of global wealth is owned by the 1%, and that will rise to 66% by 2030. Clearly this is unsustainable, left unchecked, at some point, we all become serfs. Extreme levels of inequality at some point create a crisis for society. Fortunately, there are simple solutions.

To address extreme inequality and restructure our economy so it genuinely serves society; we should raise revenue primarily by taxing wealth, income and pollution; secondly we should avoid taxing labor, and business, as these are things we want to encourage. Here are 12 proposals for building a more equitable, sustainable and performant economy and society:

1. Set the top marginal personal income tax rates such that they moderate inequality. Reducing extreme inequality should be a systemic goal of tax policy. Currently the 1% own 50% of all wealth, that’s heading up to 66% by 2030 absent policy changes. The reason is simple: GDP grows at 2–4% while return on capital grows at 5–15%; this means that wealth accumulates with the owners of capital. “The rich get richer” is a systemic and inevitable outcome. That means that eliminating corruption won’t fix inequality — it’s a systemic outcome.

2. Eliminate special rates for capital gains income. This is the real tax scam; low capital gains rates are how hedge fund managers take home billion-dollar pay checks. Taxing investment-income lower than earned-income is unfair, and the justifications for it are weak. If the goal is to encourage investment, and eliminate double taxation (how special rates for capital gains are usually justified) then shelter investment income (see #3) and lower corporate tax rates (see #7). Capital gains income is the main form of income for the wealthy and it is taxed at most at just 23.8% (up from 10% under Bush).

3. To encourage personal investment, allow significant amounts of money to be sheltered in personal IRAs, let people withdraw at any time, and then tax it. Only tax money when it is withdrawn for personal use or transferred to another person. Money invested is good for society, as long as it’s being put to productive use, we should let it continute to be productive.

This allows large amounts of money to accumulate inside pure-investment accounts; however, if it’s ever withdrawn for personal use, then it’s taxed as personal income at high marginal rates. The result is this: If a person lives modestly, they are taxed lightly. If they live extravagantly, they are taxed heavily. Should a person keep their wealth invested all their life, when it’s passed on, it’s taxed as estate tax, also at high rates. This means ALL investment income eventually becomes personal income — and it’s taxed at high personal rates, when it does.

4. Keep estate taxes high. (aka ‘Death Taxes’) Taxing wealth is the least distorting tax to the economy, and goes to the heart of the problem of addressing very high levels of inequality.

5. Tax pollution — a lot. Put a price on pollution and watch consumers and businesses work to eliminate the cost, and with it, the pollution. Using the markets to eliminate pollution is the fast, low-cost, and flexible way to reduce pollution without a lot of regulations.

The fastest, most efficient, and most comprehensive way to address global warming is to implement carbon tariffs broadly; but all forms of pollution should have a tariff, to incentive innovation to lower pollution.

6. Use property taxes to encourage smarter land and real-estate use. Just as pollution tariffs incentive clean production, property taxes can be structured to solve to preserve wildlands and farmlands, prioritizing apartment-use over speculators and encourage smarter city growth. See Portland, Or, and Victoria, BC for examples.

7. Eliminate all taxes on labor, including social security and medicare tariffs. Tariffs on labor raise the cost of hiring people, which increases unemployment. That creates a black economy and the wage difference creates resentment. If we eliminate labor burden, we also eliminate a huge area of resentment and conflict in society, between immigrant labor and native labor.

The only tax on labor that actually makes sense is workers comp, because it incentivizes businesses to invest in worker safety. These social programs (social security and health care) are more sensibly paid through wealth and income taxes instead.

8. Lower corporate taxes and radically simplify them. How you do this is by eliminating all loopholes and special categories. Where possible: Keep it Simple.

The reason this is OK socially, is that all corporate profits eventually show up as personal income (this happens in 3 ways: through salaries, dividends or stock appreciation), what this means, is it’s much more important to tax personal income than corporate income. Not only that, it’s not actually smart to pull money out of business: Capital deployed in a business is exactly where we want capital to be deployed: where it can do some good, creating better widgets and services for society. Businesses are fundamentally creative.

That said, the idea that corporation have a debt to society is important, and further, society has an interest in a diverse economy, together these argue for progressive corporate tax tiers: e.g. 0%-5%–10%–15%. This tilts the tables towards smaller enterprises, and lessens big-firm advantage.

9. Radically simplify Personal Tax Filing. Seriously, we can make it simple and eliminate the need for ~99% of all personal tax filings; here’s how: taxes are simply deducted from your paycheck each month — that’s it. No paperwork. Anyone who gets a paycheck simply gets a tax statement each month just like a credit card statement. There’s an adjustment at the end of the year for over/under payment. Simple.

This is already how it works in many countries today. One of the reasons we don’t have this in the US is that Intuit and libertarian ideologues lobby against simple taxation. Intuit lobbies against simple taxes because they make money off complex taxes. And libertarian ideologues lobby against simplicity because they want government to be painful and dysfunctional — because it ‘proves’ their point, and makes people hate government.

10. A Rainy-Day Fund. AKA: Use balancing mechanisms for fiscal policy not just monetary policy: in fat years set aside a a escalating percentage of tax revenues into a ‘rainy day fund’ (the stronger the economic growth, the higher the percentage, this moderates bubbles). In lean years, reverse the flow and spend that money on infrastructure, etc. to boost the economy. This moderates big swings and makes stimulus funding sustainable. Bonus: A national-debt solution that actually works.

11. Invest at the bottom. Anything works here. To address inequality it actually doesn’t matter very much *what* we spend it on: education, health care, welfare, elder support, environment or even military, it all has the same effect of cycling money from the top to the bottom, which is the necessary outcome if we want to reduce inequality. Clearly, some of these choices are better for other reasons, more pro-social, but what matters the most for inequality, is simply that we tax at the top, and invest at the bottom.

12. Oh yeah. The Green New Deal. Invest in the environment: we need a generational-defining effort to reverse global warming and the destruction of nature

And of course we will do this. We have no choice: our civilization depends upon it. Invest in nature, invest in mother earth, she needs it now more than ever.

Tax at the top, invest at the bottom:

• Invest in our people: education, health care, elder care, child care.
• Invest in the planet: pollution tariffs above all

Why the Real Issue is Extreme Inequality

I believe biggest structural threat facing society today, is high and rising inequality; I believe rising inequality is the root cause, the driving force, for the current sense of frustration, the sense of stuckness across America.

The collapse of the American middle-class since Reagan, is what rising inequality looks and feels like. And with that collapse and that frustration, we are seeing an epidemic of fear, hateful rhetoric and bigotry; but these are the symptoms, not the cause.

The causes are natural: wealth accumulates at the top naturally, “the rich get richer” is true. But it was accelerated by huge tax cuts for the very rich under Reagan and Bush Jr. The result is that almost all of the growth in national wealth over the last 40 years, has gone to the very wealthy.

Inequality is the main driver of that stuckness, not immigrants, not trade, not globalization, not corporate power even. It’s the extreme rise in personal wealth that matters the most. Currently 50% of global wealth is owned by 1%, and that will rise to 66% by 2030.

So what to do about all it all? My proposal is above.

About my bona fides, I am not an economist, but I design complex software systems for a living, and my work provides a perspective on how to engineer solutions for complex problems.

The above is based on my understanding of economic patterns, some of which may be challenged. However, I believe my understanding and statements about these patterns are broadly correct. That said, I am always delighted to learn something new, and honest correction is welcomed. My hope is that this is a start a conversation.