Capitalism for an Inclusive Economy

Co-authored with Gary L. Cunningham, President and CEO of Prosperity Now

With the Democratic primary well underway, one thing has become clear: America is fixated on its billionaires. Even as inequality today approaches 1929 levels, and toxic wealth inequalities severely undermine our “fair” market and democratic systems, somehow a substantial portion of our political conversation has become dominated by billionaires. Too much time was spent at last week’s Democratic debate on the role massive private wealth plays in our economy, and over the past few weeks, too much attention has been given to the complaints of billionaires like Bill Gates and Leon Cooperman over being called out for not contributing their fair share in taxes.

We shouldn’t be distracted by the gesticulations of the stratospherically wealthy. At this moment, we need to focus on the hundreds of millions of Americans left out of our economy.

In 2019, a staggering 40 percent of Americans are liquid asset poor — unable to bear the slightest accident or illness without succumbing to the downward debt spiral of unregulated predatory lending. It’s totally unjust that most Americans, and two-thirds of women, people of color, and other economically marginalized people, have no wealth to speak of. That’s no wealth to start businesses, buy homes, attend college, or otherwise create wealth for themselves, their families or their communities. It means no savings cushion to buffer from the everyday accidents and illnesses, fines and fees which drive families down into the debt spiral.

The 40 years of favorable policy changes and extreme manipulations in capital that have made our bloated billionaire class have also had a catastrophic effect on most the rest of us. As the Washington Post recently argued, we need solutions that require the wealthy to bear a larger share of the tax burden — or even their fair share. It’s true we must advocate for such measures as the restoration of the estate tax, higher rates on capital gains, and the elimination of loopholes that favor wealthy households.

The answers don’t simply lie in how we tax or don’t tax the wealthy, however. Pivotal solutions lie in the measures we are willing to take to actively re-open the American economy to lower- and middle-class Americans.

At the Federal level, we currently spend in excess of $700 billion a year on wealth building tax incentives — the home mortgage interest deduction, preferential capital gains rates, a disappearing estate tax and 529 college savings plans. These programs reward the rich, pass over the middle, and actively penalize the poor.

While the wealthiest .1 percent of American households collect an average benefit of $160,000 per year from incentives such as loopholes, expenditures, and subsidies, working families making less than $55,000 per year get an average annual benefit of $226 — that’s $1 for every $800 we pay the rich. Even if lower-income families manage to save up a few thousand dollars, they can be penalized through asset limits on certain public benefit programs and lose their assistance, essentially trapping them in poverty.

If we were to be bold enough to turn our upside-down tax code right-side up, we could unleash the full productive capacity of the American people. We could create millions of new businesses, jobs, homeowners, skilled workers, and optimistic citizens. We could also begin closing the racial wealth divide in our lifetimes, without spending a dollar more than we are already spending. We have acted on this same bold ambition before, and we can do it again.

Take, for instance, the GI Bill. We thanked the GIs who served our country in WWII by offering them low- or no- interest home, business, and college loans. Within a decade, we had five million new homeowners, nine million new college students, tripled the middle class, and ushered in the era of post-war prosperity.

However, the GI Bill did not generally invest in the 17 million women who constituted the “arsenal of democracy”, nor people of color. For example, of the 60,000 GI Bill home loans offered in 1947 in New York and New Jersey alone, just 100 went to people of color. Four hundred years of discriminatory policies like this have resulted in people of color possessing just a few cents for every dollar held by their white male fellow-citizens.

We need a GI Bill for the 21st century, but one that enables every American to save, start a business, buy a home, and save for college and retirement. Without spending an additional penny, we could invest in the productive future of every man, woman, child in the country every year. Better, if we invested progressively, we could close the racial wealth divide — what Tom Shapiro and Melvin Oliver deemed “the sedimentation of past discrimination” — in our lifetimes.

One promising example is the American Opportunity Accounts Act, also known as “baby bonds”, introduced by Sen. Cory Booker and Rep. Ayanna Pressley. This bill would give every American child a seed savings account of $1,000 at birth in an interest-bearing account that would receive additional deposits each year depending on family income. This is a practical and evidenced-based approach to closing the racial wealth gap that would have a significant impact in our lifetimes — paid for by common sense reforms to federal estate and inheritance taxes.

Our economy will be strengthened by such efforts to create wealth for all Americans. The key for success is recognizing that, as Jim Hightower pointed out in the term “free enterprise,” “free” is a verb, not an adjective. We must not be distracted from our ambitions of an equitable future by focusing on billionaires, but rather propose and support ambitious plans that proactively build assets in vulnerable communities and allow them to fully and freely participate in our economic system. Capitalism can grow prosperity for all, but only if ordinary Americans have capital to play.