Another view of the state of the Union

By DAR HADDIX, UPI Business Correspondent  |  Jan. 14, 2004 at 5:47 PM
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WASHINGTON, Jan. 14 (UPI) -- A group of economists and academics have given their version of what President Bush's State of the Union should be next week, covering issues the president is not likely to address.

"The Real State of the Union" Tuesday was sponsored by Atlantic Monthly magazine and the rising think tank New America Foundation.

Martin Baily, senior fellow at the Institute for International Economics, called for policies "to preserve the middle class." Michael Lind, Whitehead Senior Fellow at the New America Foundation said that technology is cutting the number of jobs in manufacturing and other industries that pay middle-class wages, and the number of low-paid jobs like retail sales is increasing. At the same time, living costs are rising, he said.

To help push these low-paid workers into the middle class Lind suggested tactics like government subsidies, government-created investment accounts and taxing owners of companies that use human-replacing technology.

To address the problem of jobs moving abroad, Baily called for policies that would compensate and retrain workers whose jobs move overseas.

Maya MacGuineas, director of the Fiscal Policy Program at the New America Foundation, argued for wholesale reform of the corporate tax, and the tax system in general.

In an article in The Atlantic Monthly, MacGuineas said that not only are taxes too low for corporations and the wealthy, but that less prosperous Americans actually pay higher tax rates on their incomes when Social Security tax is factored in. (Only people making less than about $88,000 a year pay the 12.4 percent annual tax on their incomes.)

MacGuineas said while the wealthy -- those with incomes over $200,000 a year -- do contribute half of all tax revenue, they also disproportionately benefit from investment income and employer benefits, as well as inherited wealth -- none of which are taxed, she said.

At the forum she suggested using the payroll tax to fund individualized savings accounts instead of using it to finance Social Security and Medicare. Another option, she said, is replacing it with alternatives like consumption or environmental taxes -- for instance, putting an environmental tax on someone who drives an SUV.

"It's better to tax 'bads' than 'goods'," she said.

The only problem is that it would be hard to include tax cuts in the new tax package when the national deficit is so high, making tax reform a "hard sell" right now, MacGuineas said at the forum. The reforms typically proposed by politicians are "incremental" and "fiscally irresponsible."

Change will come from policy makers and trickle down to politicians, she said.

Sherle Schwenninger, co-director of the Global Economic Policy Program at the New America Foundation, said that America's trade deficit could cause the collapse of the U.S. economy.

In his article in The Atlantic Monthly, Schwenninger explained that Americans spend more than they save, and its trading partners save more than they spend, resulting in a trade policy which has worked well in the short run by creating a strong dollar and providing cheap goods, but is now showing its ugly side. Now other countries are growing faster than the United States, which is suffering from job losses and a declining confidence from international investors as its debt burden grows.

Waning investor confidence would lead to higher interest rates and living costs for Americans, he warned.

Additionally, this "new mutual dependency" on Japan and China also makes the United States more vulnerable to the state policies of Japan and China and also to their weaknesses, he said.

Increased saving and investment and finding new markets for U.S. products are some ways for America to reverse these trends, he said in his article.

Finally, MacGuineas suggested a flexible retirement age based partly on how much workers make. Low wage earners tend to live shorter lives, while high wage earners usually live longer, she said at the forum.

More information can be found in The Atlantic Monthly's January/February issue, containing the magazine's annual survey on the State of the Union and accompanying articles.

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