My column last week emphasized the limited options that a conventional new government in Washington possesses to improve the economy. The conventional tools of monetary policy (interest rates) and fiscal policy (spending) are themselves about spent. Interest rates won’t go much lower (without a small savers’ revolt) nor do the huge Reagan-Bush deficits provide much room for government spending stimuli. But what could an unconventional new Washington Administration do? First, rearrange the tax systems to tax what should be discouraged not what should be encouraged. A priority is to delete the deductibility of interest payments on loans for corporate mergers, acquisitions and leveraged buyouts. These megabillion dollar deals rarely create new wealth or new jobs, except for their very rich promoters, but they do turn the tax system into a subsidizer of their unproductive investments. Let them meet the test of the equity markets for their capital.
Rather than have the RA’ Reynolds buyout cost the federal government billions in reduced revenues through the deductibility of interest payments on such empire-building merger borrowings, let these tax benefits go to encourage housing, community health centers, education and other real needs of people.
You cannot deduct your child’s college tuition payments, but companies can deduct their martinis, whiskey and cigars at business meals and entertainments. There is a big potential in rearranging the tax impacts of economic behavior. Moreover, if the richest 1% of Americans were to pay the same tax rates as they did in the more prosperous Sixties, over $100 billion a year could flow into needed public works and other neglected programs.
Second, a shift in existing federal spending from the military and corporate welfare budgets could produce many more tens of billions of dollars. Western Europe and the Pacific rim countries certainly can defend themselves without leaning on the U.S. taxpayers and soldiers. And where corporate subsidy programs are not stopped, they can reciprocate. Why shouldn’t bailed out banks be required to stop redlining and return some home mortgages and loans to neighborhoods and small businesses from whence the savings deposits came? This may be viewed as a workfare program in return for federal aid to dependent corporations.
Third, use the federal purchasing dollar to further national goals of efficiency and health/safety. The federal government is one BIG CONSUMER. It buys almost everything consumers buy — automobiles, food, energy, medicines, clothing, paper, telecommunications and health care. Through the buyer’s leverage, the federal government can advance motor vehicle safety, emissions and fuel efficiency standards, enlarge markets for recycled paper, accelerate solar energy technology and on other fronts save the taxpayers money through life-cycle costing and help consumers and the environment as well.
In the past, government purchasing legitimized generic drugs, reduced noisy equipment and brought Ford Motor Co. back into the air bag market (for 5300 government cars) and other companies followed.
Of course there are other ways to drive the private economy toward greater efficiencies. Most effective would be a national energy efficiency policy where the law is used to compel or induce technology‑driven savings in the hundreds of billions of dollars per decade. In a forthcoming article from Foreign Affairs magazine, authors Amory Lovins and Joseph Romm detail “sensible energy policies that can achieve greater economic and environmental health at lower costs by wringing far more work from each dollar of energy.” They point out that the U.S. now uses twice as much energy as Japan or Germany to produce one dollar of GNP and that in the past twenty two years, oil imports have taken $1 trillion from the U.S. economy.
Further improvements in the economy can flow from applying a public interest standard to the management of the government’s massive public assets — such as the public lands with their rich natural resources, physical assets such as roads, laboratories and power dams, and taxpayer funded inventions, medical discoveries and data bases. Since taxpayers paid for these assets or their management our government should not be giving them away to corporate interests or for example using obsolete highway pavement technologies that cost massively in preventable repairs.
Finally, the Clinton government can become a citizen-driven government. By empowering voters, workers, taxpayers, consumers and shareholders, the rot of lobbies buying politicians or the S & L bailout nightmare or CEOs, who run their company down while pushing their salaries up, will become rarer events indeed.
(For a copy of the mechanisms for a citizen-driven government and a consumer-sovereign economy, send a self-addressed, stamped envelope to “The Concord Principles”, P. 0. Box 19312, Washington, DC 20036.)