By Marvin Keshner

We have had tax cuts, deficit spending, and low interest rates. We should have a vigorous economy. Why are the usual economic stimuli not working? Simple. We have structural issues holding us back. We must address them head on.

Last year, we passed a $3 trillion tax cut. It was supposed to propel our economy, raise the growth rate to over 4 percent per year, raise wages, and pay for itself. It has not. We got a bump for a few months and then returned to slow growth of 2.5 years ago, circa 2 percent.

The tax cut has increased our deficits to over $ 1 trillion per year. Huge deficit spending should propel our economy upward, but it has not. Our total national debt is now six times the annual income of the U.S. government and growing by 5 percent per year. Not good. If our debt goes much higher, the credit rating of the U.S. will suffer.

Low interest rates should also propel our economy upward. Current mortgage and loan interest rates are historically low. They are as low as they were in the 1960s, when the economy was growing at 4 percent per year.

The unemployment number sounds good, 3.8 percent. But, if you include people who have given up looking for a job and people who can only find part-time work, then the number is 8 percent. This is a bad number, usually only seen in the middle of a recession. In the 1960s, total unemployment was 4 percent, including everyone.

What are the structural issues we must address?

First, automation is ripping through our economy. For decades, factory workers used to earn a median wage with a high school education. Those jobs are gone and not coming back. Robots are great at low-skill jobs. U.S. factory production is at an all-time high, but factory jobs are greatly reduced. Retail jobs are being replaced by online shopping and automated warehouses. Automated trucks will soon replace truck drivers.

Second, we have a skill gap. We have over 3 million skilled jobs that cannot find workers. Jobs with good pay are skilled jobs. Low-skill workers, who have lost their good jobs, now have minimum wage jobs. As a result, the middle class is struggling. Families must work three or four jobs just to get by.

Third, corporations are not investing. The middle class drives our economy. The middle class buys the vast majority of cars, houses, furniture, clothes, etc. When the middle class is struggling, demand for products is weak. When demand is weak, corporations will not invest.

The tax cut lowered corporate taxes by 40 percent. Did corporations invest to create new factories, more jobs, better productivity and higher wages? No. They used 90 percent of the money to buy back stock and raise stock prices.

Fourth, we have the most unbalanced distribution of wealth and income since the crash of 1929 and the Great Depression. Before the tax cut, the top 1 percent earned 20 percent of all income and owned 40 percent of America’s total wealth, more than the total owned by the bottom 90 percent of the country. With the recent tax cut, this is getting even worse.

Many people consider this to be grossly unfair. But, putting fairness aside, it is dangerous to our economy. Rich people do not spend enough money to make up for a weak middle class. Our economy is on the edge of stalling because not enough money is coming down to the middle class.

Finally, we are not generating enough new technology and new business. In the 1960s, after Russia launched Sputnik, we invested hugely in education and university research. The results were incredible. Our computers and smartphones came from that program. Japan and Korea are investing in new technology and making long-term corporate investments to create new businesses. We are falling behind.

Are there good
solutions? You bet.

We are headed for a disaster like the crash of 1929. We must repeal the recent tax cut for the very wealthy and invest money to directly re-vitalize the middle class.

We need to invest and up the skill level of our workforce. We need to invest in education at all levels: pre-school, K-12, and for college and vocational training, with 2 percent loans.

We need to invest in our infrastructure and to protect ourselves from wildfires, droughts and flooding. These investments will protect us, stimulate the economy, and create millions of good-paying, middle-class jobs.

Change the holding period for long-term capital gains to 5 years to encourage long-term investments. Invest more in university research to create new technologies and new businesses.

It is often argued that the very wealthy pay more than their “fair share” of taxes. This is not true. Workers pay a combination of payroll and income taxes. Rich people pay mostly income tax. Their income is mostly capital gains, only half are counted as income. Thus, the top 1 percent pay about 15 percent in taxes. Wow! Workers and their employers pay 16 percent in payroll taxes, alone.

In the big picture, before the tax cut, the top 5 percent earned 35 percent of all income and paid over 50 percent of federal income taxes. This sounds like a “fair share”. But, income taxes are only half of total federal taxes. Almost half are payroll taxes. Of total federal taxes, which include both income taxes and payroll taxes, the top 5 percent paid only 26 percent. A “fair share” for the richest Americans, with the most disposable income, would be closer to 40 percent, not 26 percent.

Our economy depends on Social Security and Medicare, which are funded by total taxes. When everyone pays their “fair share” of total federal taxes, then we can invest, fix issues, and re-vitalize the middle class.

Marvin Keshner, who holds undergraduate and graduate degrees from MIT, worked for 26 years at Hewlett Packard, founded OptiSolar, which pioneered low-cost, utility-scale solar, and has been a consultant to the solar industry.

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