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One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato (429-347 BC)

Wednesday, July 13, 2016

Former SEIU President Andy Stern Dips His Toe Into The 2020 Presidential Waters (Part Two)

Andy Stern
by Ralph Benko, Contributing Author: Are good Middle Class jobs an endangered species? If so is the solution to that for the taxpayers to send almost everyone $10,000/year tax free?

As described in my accompanying column Andy Stern’s new Raising The Floor is the best of books, it is the worst of books, it is a book of wisdom, it is a book of foolishness, it contains epic belief, it contains epic incredulity…. He also hints at a 2020 presidential run.

My accompanying column described Stern at his best. And then the best of books turns into the worst of books.

Stern presents his Big Reveal: a Universal Basic Income – $10,000/year, tax free, to everyone between the age of 18 and 64. This sounded good to me even though I’m within months of aging out of eligibility. It had sounded even better when propounded by’s Tim Worstall, channeling conservative public intellectual Charles Murray, as an idea with solid conservative cred.

Big mistake. It turns out that the numbers don’t come even close to adding up. Yes, there’s a trillion dollars a year of welfare programs, federal and state, that could be traded in as a down payment for a straight cash transfer. But it turns out that this trillion dollars only gets Stern considerably less than half way to $10,000/year.

Murray and other conservative and libertarian champions of a Universal Basic Income also propose … wait for it … to cash out our social insurance programs: Social Security, Medicare, and Medicaid to pay for it. This won’t do.

Ending our prime social insurance programs is unacceptable both to Stern and to me. It is unacceptable based on social justice and legitimate political considerations. When you knock these sources of funding out, the proposed Universal Basic Income scales down to less than $5,000/year per person. That entirely knocks the props out of cashing out welfare by not providing, in return, enough to sustain the poor and afflicted.

Attention libertarians! There is nothing in the least wrong with the State’s sustaining the poor and the afflicted. As Hayek wrote, in the very fountainhead of libertarian canon, The Road To Serfdom:
Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor efforts to overcome their consequences are as a rule weakened by the provision of assistance—where, in short, we deal with genuinely insurable risks—the case the for the state’s helping to organize a comprehensive system of social insurance is very strong. … [T]here is no incompatibility in principle between the state’s providing greater security in this way and the preservation of individual freedom.There's a legitimate difference between social insurance and welfare. So Stern's unique value proposition, as a Man of the Left, seems to be that he would be willing to transform $1T in subsidies to the poor into $1T in cash if the rich (and, as it devolves, Middle Class) are willing to pony up an additional $1T+ in new taxes to match it.

Stern extols, at length, the benefits of Universal Basic Income, something I entered Stage Left hoping to support. So far, so good. He then turns to a series of catastrophic propositions to finance it. This transforms Raising The Floor into the worst of books.

Stern, in a sweet-natured desire to create a Kumbaya Coalition, proclaims: “Note to my progressive colleagues: if you want to get anywhere in the fight for UBI, keep your ‘soak the rich’ rhetoric to a minimum. Better yet, nix it.” He then quickly proposes a series of “soak the rich” measures such Piketty’s 1.5% wealth tax, which he calculates would raise $600b/year (far short of funding his UBI), and a so-called Robin Hood, more properly Sheriff of Nottingham, Tax of 0.25 percent on each side of a stock trade which “could produce over $150 billion a year.” Also far short.

That money comes from somebody and mostly, one infers, not janitors. Featuring low rates proves, after all, a semi-covert effort to soak the rich. But this is deceptive.

"Piketty's Charge" is on capital. The stock transfer tax is on a flow of funds that do not constitute income, just moving capital from here to there. Neither tax is good for job creation.

“The Rich” often are a lot of annoying things. Yet they’re never stupid enough to miss a proposed $750 billion (or more) tax increase, however modestly covered by the disingenuous fig leaves of low rates.

Stern also proposes a tax on natural resources which, as things stand today, simply would be an elegant rationalization for a heavy new corporate tax. The concept reaches back to an obscure idea from my favorite Founding Father, Thomas Paine. It just possibly might have been a good idea in 1795. Even if it had been good then this passed its sell-by date a couple of hundred years ago.

“The Rich” do not have enough wealth to fund this UBI for very long. You could confiscate all the wealth of the Koch brothers plus George Soros and Tom Steyer and use it to fund Universal Basic Income for, maybe, a month. Confiscate all the money of the Forbes 400 — $2.34T at last count — and you’ll have enough money to provide Universal Basic Income for about a year.

After which you will have killed the goose that lays the golden eggs. There just aren’t enough of “The Rich” to fund this (or other massive goodie bags now proposed by the left). Get thee to a séance, Andy, and ask the shade of Hugo Chavez. Or just look it up.

Maybe you’ve heard about the food riots breaking out in Venezuela? Immiseration of the poor and Middle Class is an inevitable outcome of the confiscation of capital. It’s been shown too many times to doubt.

Thus one would have to soak the Middle Class to pay for this program designed to appeal to the Middle Class. This is antithetical. And indeed, after dallying with sly approaches to soaking the rich Stern proposes to soak the Middle Class too.

One of these proposals is to eliminate “all or some” of the deductions in the Internal Revenue Code. Really want to eliminate the charitable deduction? How about taxing municipal bond interest, or imposing taxes on money paid to pay state taxes? Such measures are antithetical to rebuilding infrastructure, something which Stern heartily advocates.

Moreover the remaining tax deductions are heavily defended. You really don’t know Congressional trench warfare until you pick on the mortgage interest deduction. The Realtors’ lobby makes the NRA look like Code Pink. Moreover millions of middle class families innocently relied on that deduction when they purchased a home.

Pension contributions? Health insurance premiums?

Congresspeople would lose elections in droves by taking these hardly egregious deductions away without providing a more compelling countervailing benefit such as dramatically reduced, across-the-board, tax rates.

Stern also suggests a VAT as a funding source. That would take back at the cash register some or much of the funds delivered by mail to the Middle Class which the UBI is sold to support. Uncle Sam’s left hand would thus take back much of what was given with the right.

A VAT might be a wily way to transfer funds from the Middle Class to the poor (while largely exempting “The Rich”). As for buttressing the Middle Class it is a form of Three Card Monte.

Then Stern proposes trimming the $600B/year military budget. I, as a paleoconservative, find this conceptually appealing. Paleoconservatives don’t like standing armies. James Madison didn’t either. Yet it is dubious that many Americans would be enthused to eliminate our Army, Navy, Air Force, Marines and Coast Guard just to send everyone between $2,000 – $3,000 a year.

Stern then attacks farm subsidies and “subsidies” to oil and gas (a dubious progressive shibboleth). Both together, at best, would fund a couple of weeks of his proposed Universal Basic Income. There isn’t enough discretionary spending to cut to quarry meaningful funding to make the pay-fors.

To get to $10,000/yr without cashing out our intensely popular social insurance programs you really do have to soak the Middle Class. This is antithetical to UBI’s stated premise.

The argument is further undermined by ill-founded propositions such as “it might be necessary in the initial bill to specify that Congress needs a super majority of 75 to 90 percent to change the UBI disbursement level.” Stern’s fact checker apparently here went AWOL. One Congress cannot bind a future Congress. Period.

UBI doesn't have to go off the rails. Andy Stern, in his personal odyssey, apparently failed to take a walk on the Supply Side – policies empirically determined to support robust job creation and equitable prosperity. Jude Wanniski, a key advisor to Rep. Jack Kemp, was an avowed Marxist. Kemp himself had been a labor union president. Memo to Andy Stern: seek out your #LostFamily, the Supply Siders, and get back on track.

Taking a walk on the Supply Side Stern might find John “The Grumpy Economist” Cochrane. Cochrane has done a terrific brief analysis of how to make something along the lines of Universal Basic Income work by limiting its ubiquity while not injuring its universality, and pivots to the real opportunity:
We want to give more help to people who need more help. That lets us be more generous to those who do need help, and contains moral hazard that people who don’t really need help should be working and paying taxes to supply help.

… So set this apart, recognize that adapting to automation will require getting people skills not sending them checks. And that is going to mean keeping the price system alive. It has to be crystal clear that computer programming pays more than goof off majors.
Meanwhile, Supply Side icon Charles Kadlec, a few years ago, noted at a Congressional Budget Office report: “in Appendix B of The Budget and Economic Outlook: Fiscal Years 2012 to 2022: every one-tenth of one percent increase in the growth rate will reduce the federal budget deficit over the next 10 years by $314 billion.”

I’ve called this phenomenon “the Kadlec Curve.” If we adopt policies that raise the rate of GDP growth from its current anemic < 2%/year to close to 4% a year we will bring $6 trillion in new federal revenue over ten years. From under 2% to over 4% … maybe over $9 trillion…. Even that would not get Stern's UBI all the way there. And there are no shortage of of claimants on that new money. But it’s a more credible step toward a pay-for than shutting down America’s armed forces. That kind of sizzling growth also would generate the kind of massive new job creation and upward mobility that is precisely what Andy Stern most deeply yearns for. Win-win. Prices, including wages, are set by supply and demand, period. The only real way of "raising the floor" is by stoking the demand for labor through sizzling economic growth. How to get the economy growing again? We actually know a lot about how to make it happen. Reagan and Clinton did it. We can too. Let us count the ways. And since Andy Stern, channeling Peter Barnes, turned to Tom Paine let us begin by turning to Paine waxing prophetic rather than elegiac. From a tract Paine wrote in 1786 collected as Dissertations on government, the affairs of the bank, and paper money:
It was horrid to see, and hurtful to recollect, how loose the principles of justice were left, by means of the paper (money) emissions during the (Revolutionary) war. The experience then had should be a warning to any assembly how they venture to open such a dangerous door again. …

But the evils of paper money have no end. Its uncertain and fluctuating value is continually awakening or creating new schemes of deceit. Every principle of justice is put to the rack, and the bond of society dissolved.

As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom — and property no security — where this practice can be acted: and the committee who shall bring in a report for this purpose, or the member who moves for it, and he who seconds it merits impeachment, and sooner or later may expect it.
As set forth in my recent Letter to the Left the flat-lining of median family income and the explosion of inequality began right after President Nixon “closed the gold window” in 1971. Nixon thereafter was forced to resign in the face, a là Paine, of certain impeachment. Want to raise the floor? Let’s begin by making the dollar as good as gold again.

In Raising The Floor, Andy Stern also coyly dips his toe into the presidential waters of 2020. Run Andy run! But first take a walk on the Supply Side to discover ways of really raising the floor -- by stoking job creation -- plus seeking sustainable means of funding that won't soak the Middle Class.
(Part 1: Former SEIU President Andy Stern Wants Me To Send You $10,000/Year Tax Free)
Ralph Benko is senior advisor, economics, to American Principles in Action's Gold Standard 2012 Initiative, and a contributor to the ARRA News Service. Founder of The Prosperity Caucus, he was a member of the Jack Kemp supply-side team, served in an unrelated area as a deputy general counsel in the Reagan White House. The article which first appeared in Forbes.

Tags: Ralph Benko, former SEIU President, Andy Stern To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!
Posted by Bill Smith at 11:29 AM - Post Link


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