ICYMI: Chairman Murray Holds a Hearing on Opportunity, Mobility, and Inequality in Today’s Economy
Yesterday, Chairman Patty Murray (D-WA) and the Senate Budget Committee held a hearing on Opportunity, Mobility, and Inequality in Today’s Economy. Majority witnesses were Joseph Stiglitz, University Professor of Economics at Columbia University, and Raj Chetty, William Henry Bloomberg Professor of Economics at Harvard University.
Chairman Murray discussed the lack of economic mobility and rise of economic inequality in the United States.
“…Something happened to our economy over the last three decades or so. Instead of the rewards from hard work and innovation being shared broadly, those rewards began to flow overwhelmingly to those at the very top, while everyone else was left behind. But stagnant economic mobility and soaring inequality are not inevitable. We can expand opportunity to more Americans and ensure people have the tools they need to succeed. And that’s what Congress should be focused on in the coming years. We know that our economy thrives when America’s middle class can earn enough to raise a family, save up for their kids’ college, and put some money away for a secure retirement. But in recent decades, the middle class has been squeezed. Wages have stagnated. Workers can’t find jobs. Homeowners worry about making their next mortgage payment. That’s happened even as incomes for the country’s top earners have increased. That trend is simply unsustainable and unhealthy for our economy,” Murray said in her opening statement.
Murray laid out ways to help workers and struggling families, including raising the minimum wage, updating the tax code, and addressing various deficits.
“…we need to do some foundational things to help today’s workers. That starts with a minimum wage increase. Working full-time shouldn’t leave a family in poverty. Congress can and should act to ensure that hard work pays off by raising the minimum wage for millions of workers. And, last week, I introduced the 21st Century Worker Tax Cut Act. That bill would update our tax code to help today’s workers and families keep more of what they earn,” Murray said.
“We must address our infrastructure deficit. Infrastructure is what makes our economy move. It helps businesses grow, and communities to thrive. We need to make these investments to spark economic growth and to create more jobs for more workers. We must give our kids the best education and training they’ll need to compete and to lead the world. That means investing in early learning, all the way up to college and job training programs. And, we must maintain a strong safety net. Programs like food assistance and affordable housing help ensure families don’t fall into deep poverty, hunger, and homelessness. Instead, it gives families more opportunity to climb the economic ladder. And the last point I’ll mention is the need to reform our tax code. Our system is riddled with tax loopholes and special-interest carve-outs that benefit the wealthiest Americans and the biggest corporations. That’s simply unfair. Instead of spending billions on these tax loopholes, we should be investing in national priorities that benefit American families”
Watch Chairman Murray’s opening statement here.
Joseph Stiglitz, Professor of Economics at Columbia University, explained the policies that should be enacted to help those struggling and strengthen the middle class.
“We need to move more people out of poverty, strengthen the middle class, and curb the excesses at the top. Most of the policies are familiar: more support for education, including pre-school; increasing the minimum wage; strengthening the earned-income tax credit; giving more voice to workers in the workplace, including through unions; more effective enforcement of anti-discrimination laws; better corporate governance, to curb the abuses of CEO pay; better financial sector regulations, to curb not just market manipulation and excessive speculative activity, but also predatory lending and abusive credit card practices; better anti-trust laws, and better enforcement of the laws we have; and a fairer tax system—one that does not reward speculators or those that take advantage of off-shore tax havens with tax rates lower than honest Americans who work for a living,” Stiglitz said in his testimony.
Read Joseph Stiglitz’s full testimony here
Raj Chetty, William Henry Bloomberg Professor of Economics at Harvard University, told the Committee the characteristics of areas with higher upward mobility.
Map showing the average percentile rank of children who grow up in below-median income families across areas of the U.S. (absolute upward mobility). Lighter colors represent areas where children from low-income families are more likely to move up in the income distribution
“What makes some places in America have much higher rates of upward mobility than others? So we find five key factors that are correlated with differences in upward mobility across areas. The first is segregation. Areas with more racially integrated neighborhoods and more mixed income neighborhoods tend to have higher rates of upward mobility. The second, as Senator Murray mentioned, is inequality. Areas with greater inequality, in particular a smaller middle class, have less opportunity for mobility as well. Third, as you might expect, areas with better schools, for instance better teachers, smaller classes, better funding, tend to have higher levels of upward mobility. Fourth, areas with greater social capital, which are proxies for the strength of social networks and community involvement in an area also tend to have higher levels of upward mobility. And finally, mobility is much higher in areas with stronger family structures, areas with fewer single parents for example. Now a very important thing to note there is that even children of married parents have higher rates of upward mobility if they live in a community with fewer single parents, so this is something about the structure of the community and not per say whether you have single or married parents,” Chetty said.
Read Raj Chetty’s full testimony here
Murray asked Stiglitz and Chetty to describe the importance of investments in education, infrastructure, and scientific research.
“Making those investments- we would create demand. The real problem today with our economy, is lack of aggregate demand – that’s why there aren’t jobs. In the sectors of our economy where there is demand, jobs are being created. So it’s lack of demand that’s really holding the economy back. So if we started investing in areas like you mentioned, infrastructure, education, we would increase demand in those areas, we would create jobs and that would strengthen our economy,” Stiglitz responded.
“So if you raise taxes and collect additional revenue that you then invest in better schools or better infrastructure, given the rates of return that we’ve found on such investments, I would think, actually, precisely the opposite – that in a situation such as the one we’re in today where many people think that we’re underinvesting in basic infrastructure- that’s going to have a huge long-term payout for the American economy, we need to fund, as Senator Sessions said, we need to fund those investments in some way, and on net, I would say, increasing the taxes on the wealthiest and closing certain loopholes, for instance in the corporate tax system, as you suggested, would, if invested well, have very large returns,” Chetty explained.
Members of the Committee discussed the dangers of economic inequality.
Senator Angus King (I-ME), explained how economic inequality can lead to instability if people do not believe they can move up in the economy: “We don’t want to become a country of gated communities -- a country where the rich live behind walls with barb wire. You go to some Latin American countries and that’s exactly what you see. Senator Kaine mentioned Henry Ford. Henry Ford was the ultimate capitalist, but who realized he needed customers. And I worry today that with the concentration of wealth that those at the top have forgotten that they need customers. So I think that there are very serious implications of this for the long-term strength not only of our economy, but of our political economy, of our political system, which is based on the premise that people have hope of moving up. And if people lose that hope and decide the system is entirely rigged against them, that’s going to produce instability and a level of political and economic resentment that we’ve never seen in this country and I think it’s very dangerous.”
Senator Bernie Sanders (I-VT), highlighted the differences in financial wealth between those at the top, and those at the bottom: “What we’re dealing today with economics and finances, ultimately we’re dealing with a moral issue of what kind of nation we want to become. From a moral perspective, Dr. Stiglitz and other members of the panel, do you have a problem that the top 1 percent owns 38 percent of the financial wealth of America while the bottom 60 percent owns all of 2.3 percent? Do we have a problem that one family, the Wal-Mart family… the Walton family of Wal-Mart, owns more wealth than the bottom 40 percent of the American people? One family. Should Congress begin to address income and wealth inequality from a moral perspective?” Both Stiglitz and Chetty agreed that Congress should address income and wealth inequality from a moral perspective.
Senator Sheldon Whitehouse (D-RI), described inequality within the tax code: “In any discussion of taxes I can’t help but point, particularly after we’ve heard more of the ardent commentary of our Republican friends about the debt and the deficit, that the tax loopholes that contribute to that debt and that deficit they appear to defend with a rare and special passion. Whether it’s the carried interest exemption that allows billionaires to pay lower tax rates than brick masons. Whether it’s the offshore tax havens that allow American corporations to pay essentially no taxes. Use our roads, use our courts, and enjoy the benefit of a free society that everybody else pays for and then run their money offshore and avoid the taxman. Or letting the richest companies in the history of the planet continue to enjoy oil subsidies. Every time we try to address those, the very same people who like to give these ardent statements on the debt then defend all of those loopholes. And it causes me to take with a grain of salt how serious we are about the debt if we’re willing to … if we’d prefer to maintain those tax preferences than to deal with it.”
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