The Progressive - February 7, 2020
The United States is now more unequal than ever. Our student debt crisis gets worse by the day, and 40 percent of Americans cannot afford an emergency expense of $400 or more. Meanwhile, the top 1 percent holds more wealth than the entire middle class.
This concentrated wealth leads to concentrated political power—for both individuals and industries. For this reason, making real gains toward a fairer economy will require bold steps.
Here is a step-by-step guide to making that happen.
Cancel student debt to boost the economy
U.S. residents are being crushed by student debt. Some forty-two million Americans owe a collective $1.6 trillion. An estimated 5.2 million of these borrowers are in default on their loans, with another borrower falling into default every twenty-eight seconds. This problem affects more than just the lives of the debtors: The New York Federal Reserve Bank has traced rising student debt to a decline in home ownership, which in turn has a negative impact on local economies.
We must provide direct relief from these increasingly unmanageable financial burdens. Our failure to do so is particularly cruel in the face of our society’s promises and messaging on education. Higher education is held up as the pathway to a better life, but student debt is treated more harshly than most other kinds of consumer debt. You might be able to declare bankruptcy on your gambling debt, but you can’t do so on your student loans—unless you meet a nearly impossible “undue hardship” standard.
Canceling student debt would provide real, immediate relief to millions. A study by Harvard Business School, Indiana University, and Georgia State University showed significant positive impacts on the lives of borrowers who had their debt canceled. They saw an increase in income and were able to lower their other (nonstudent loan) debts.
Moreover, a study by the Levy Economics Institute showed that student debt cancellation would provide a serious lift to the economy. It projects that in the decade following a wide-scale debt cancellation, the nation’s gross domestic product could rise by up to $108 billion a year, and create up to 1.5 million jobs per year.
Currently, there are two promising proposals in Congress aimed at addressing student debt. One, by Senator Elizabeth Warren and Majority Whip James Clyburn, would cancel up to $50,000 in loans per borrower. The other, by Senator Bernie Sanders and Representatives Pramila Jayapal and Ilhan Omar, would cancel all student debt.
Stop the payday debt trap
We also need policies to ensure that people’s economic vulnerability is not exploited by unscrupulous lenders. An astonishing 80 percent of payday loans are taken out to pay back payday loans. And over the course of a year, payday and car title loans cost the people who can least afford it some $8 billion in excess interest and fees.
Currently, there is no general federal interest rate limit on payday, car title, or other similar lending, so rates can run to 300 percent and higher. But the Military Lending Act, passed in 2006, puts a cap of 36 percent interest on consumer loans to active duty service members and their families. A bill now in Congress, the bipartisan Veterans and Consumers Fair Credit Act, would extend these protections to veterans and all consumers; its passage would help bring an end to the targeting of economically vulnerable people.
Stop Wall Street’s looting
Retail stores are going bankrupt. Newsrooms and media outlets have similarly been gutted. And private health care providers are increasingly cutting corners. One main contributor to these problems is private equity looting, in which Wall Street investment firms acquire companies, load them up with debt, extract wealth for themselves, sell off assets, and lay off workers.
Private equity firms have a staggering amount of money to invest—some $5.8 trillion since 2009. The results have not been as good as the industry says they are for investors, while they are undeniably devastating to many workers at companies taken over by private equity. In the last ten years, nearly 600,000 jobs have been lost due to these takeovers. Another 728,000 “indirect jobs” at suppliers and local businesses have also disappeared, thanks to private equity’s role in the retail sector alone.
Workers have lost their jobs at such well-known retailers as Toys “R” Us, Payless, Sears, Kmart, RadioShack, Shopko, and Sports Authority. Private equity firms looted these companies to enrich themselves, putting the survival of the firms and workers’ security at risk. Private equity takeovers have wreaked havoc on newspapers and other media outlets, including TheDenver Post, Splinter, and Deadspin. And private equity is also an increasingly major player in everything from housing to health care to fracking and other extractive industries.
Until recently, the largest owner of single-family homes was the private equity titan Blackstone (the firm sold its interests). Two physician-staffing companies owned by private equity firms KKR and Blackstone have cornered 30 percent of that market. This contributed to the rise of surprise medical billing, where patients may get an out-of-network bill for practitioners they saw at an in-network hospital. Private equity firms are now spending tens of millions of dollars to block efforts aimed at fixing this problem.
The Stop Wall Street Looting Act of 2019, introduced by Senators Elizabeth Warren, Tammy Baldwin, and Sherrod Brown and Representatives Mark Pocan and Pramila Jayapal, would create protections for workers, curb the industry’s predatory practices and financial engineering tactics, and require private equity firms to share in the liability for the companies they take over. It would also prioritize worker pay during a company bankruptcy and end the tax subsidies these firms receive. Passage of this bill would be an important step toward ending the industry’s abusive practices.
Reverse unjust taxation with a wealth tax
Income inequality is at the highest level it’s been since the U.S. Census began tracking it more than five decades ago. Today, the 400 richest families are paying a lower tax rate than the working and middle classes.
A wealth tax would force billionaires to pay their fair share to the society that helped them amass these staggering fortunes in the first place. Billionaires all benefit from public infrastructure investments, like those that helped create the Internet, or the U.S. legal system, which provides patent enforcement and intellectual property rights, or systems of rules and regulations that help stabilize the financial system for all. ...
Read full report at The Progressive