The American Way of Poverty: How the Other Half Still Lives (37 page)

For Martha Sanchez, a well-known environmental and education activist in Los Angeles, her issue of choice was schooling—specifically how to ensure that low-income kids, such as her own children, could attend schools not dangerously polluted by industrial byproducts, could get the same educational opportunities as their more affluent peers, and could have their needs taken as seriously by political leaders as were those of other families.

Sanchez, who had migrated to the U.S. from Mexico as a young woman, had made a name for herself campaigning to expose the serious environmental pollution that a local metal-plating company
in her industrial, East Los Angeles neighborhood had inflicted on her children’s school grounds. She had called out the company, the school district, and local political officials in a series of public meetings—at first in pidgin English; later, as she devoted more time to her studies, in better English; finally, after she began studying law, in English laced with legal references. She had organized residents and teachers to fight back against the presence of sickness-inducing heavy metals in the soil on which the school was built and in the air that her children daily breathed. And after years of campaigning, she had succeeded in getting the school cleaned up, the company to stop operating in the vicinity, and had secured for her community grant money to convert the onetime factory into an ambitious affordable housing complex.

For Sanchez, it wasn’t just about cosmetic improvements. Rather, the more she had put her heart and soul into the issue, the more she realized that this was a profound question of justice: kids being educated in overcrowded, polluted schools, who routinely came home vomiting, with rashes and nosebleeds, finding it hard to breathe, weren’t just losing classroom time; compared to more well-to-do children, living and attending schools in better neighborhoods, they were losing their opportunities in life.

“You have to tell them that that is not right,” Sanchez realized, talking of her early interactions with the school district. “Certain chemicals are known to cause cancer, and this particular community had been exposed to these chemicals.”

It became the cause of her life.

The last six years we were always, twice or three times per month, doing a community action—writing letters, demonstrations, trying to find the laws that weren’t protecting us, trying to redirect resources, trying to bring experts to do tests on people. The air quality department agreed to place an air monitor in one of the classrooms. The school district changed its policy about building new schools. They started to implement rules. They visited the school to check
how the kids were doing. We won mobile cleaning of the playground. They came every month to offer free treatment for the kids who were suffering from asthma or allergies. They were there for three years. They were also following the company, and they did surprise visits. They forced the company to place filters in the building, to change some tanks and the way they were operating. The company stopped using spray paint. One day in 2005 the air quality person organized a big press conference to tell the people he had charged the company $65,000 for illegal disposal, and he announced the company had to face criminal charges because of that. It was a huge event.

ROBIN HOOD AND THE INCREDIBLE HULK

Whatever one’s additions to a national anti-poverty wish list, whatever one’s choice of big, hairy, audacious goals posited during conversations such as those coordinated by George Goehl, or put forward during legislative hearings, none of them come free. Injecting widespread opportunity into long-downtrodden communities; developing newer, better approaches to crime and punishment, addiction, mental illness, pollution; and revitalizing long-neglected public infrastructure, from antiquated school buildings in heavily polluted urban centers to transport systems connecting poor communities to employment hubs—all of these require new revenue sources.

Building on a model proposed by community organizers such as Goehl; progressive think tanks such as the D.C.-based Center for Economic and Policy Research (CEPR); leading economists such as the University of Massachusetts’s Bob Pollin and CEPR’s Dean Baker; and billionaire investor Warren Buffett, I would suggest the centerpiece here be a new financial transaction tax of the kind debated in many European capitals since 2008 but in America shelved largely because of opposition from the financial sector. It could be titled, simply, the economic justice, or fair play, tax. Some proponents have labeled it the Robin Hood tax.

The concept isn’t new. For the better part of three centuries, the United Kingdom has leveled a small stamp tax on stock trades. Japan had a wide array of financial transaction taxes on the books into the late 1980s. And even in the United States, where the financial industry has long been hostile to such levies, from the early years of the 1900s through to 1964, stock trades were subject to a small tax. Indeed, during the New Deal years the tax was expanded enough to generate significant amounts of revenue: a 0.04 percent tax on the trade in stock, combined with a 0.12 percent tax on new stock issues. Such amounts, practically invisible on a daily basis to individual investors, would, said Baker, if they were still on the books today, be generating approximately $25 billion per year in revenue for the federal government.

Reintroduce this tax and expand it (at varying levels, depending on the kind of transaction) to include
all
forms of financial trades, from stocks to bonds, from currency trades to credit default initiatives, and the government could, Baker argued, easily bring in $150 billion per year without slowing down the workings of the broader economy.

In December 2009, scores of economists from around the country signed an open letter circulated by CEPR, urging the adoption of just such a tax. “The cost of trading financial assets has plummeted over the last three decades as a result of computerization. This has led to an enormous explosion in trading volume, with most trades having little economic or social value and redistributing disproportionate resources to the financial sector. A set of modest financial transactions taxes, which would just raise trading costs back to the level of two or three decades ago, would have very limited impact on trades that have real economic value,” the economists wrote. “Such taxes could both reduce the volume of speculation in financial markets and provide substantial revenue for either important public purposes and/or deficit reduction. Financial transactions taxes could be an important part of a reform package that seeks to remake the financial sector so that it better serves the larger economy.”
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Critics argue that in the globalized financial environment of the twenty-first century, no single country can implement such a tax; that it’s good in theory, but would somehow have to be introduced simultaneously in all major economies to stop finance simply migrating to tax-haven states. American opposition to such changes explains why the UK didn’t expand its stock trade tax into a more general financial transaction tax, and Britain’s opposition in turn explained the reason why the European Union shied away from such a tax despite support for it in France and other large economies.

Baker was having none of it. Yes, he acknowledged, that might be true for small countries. But when a nation with a political footprint and an economy as large as that of the United States took a stance, it had a pretty good chance of bringing other countries along for the ride. Sure, some individuals and corporations could move their trades overseas, but what was to stop the American government from passing laws saying that such transactions, engaged in by U.S. citizens and U.S. companies, were subject to an American financial transaction tax regardless of where the trade occurred? What was to stop the American government putting in place incentives to report these trades, such as, Baker said mischievously, rewarding whistleblowers with a percentage of the taxes owed once they were collected? And what was to stop the government from making it clear in international meetings that it expected as much cooperation from allies in the arena of tax evasion as it did in the realm of antiterrorism work? “I call this the Incredible Hulk theory of international relations,” Baker said drolly. “There’re a million things we could do to a country that doesn’t go along with us.”

In Congress, Senator Tom Harkin from Iowa and Representative Pete DeFazio from Oregon proposed a 0.25 percent financial transaction tax, which would have generated about $60 billion annually. Not surprisingly, in a Congress tilting ever more conservative in the wake of the 2010 midterm elections, the proposal went nowhere, languishing without ever being put up for a vote.

But, outside the halls of power, after the 2008 collapse a growing chorus of voices
did
begin calling for just such a revenue-raising mechanism. National People’s Action and a number of trade unions urged a tax of 2 percent on financial transactions and estimated that such a tax could add upward of $350 billion to federal tax revenues. An increasing number of economists signed on, embracing the notion of a tax somewhere between the low-end version proposed by Harkin and DeFazio and the higher-end one called for by the NPA.

The framework, argued Baker, was already in place: Some stock market transactions were currently taxed, albeit at a miniscule rate, to fund the operations of the Securities and Exchange Commission. Expand this, phase in the new taxes over a couple of years so as not to disrupt markets, and the country ends up having available a huge pool of money that it didn’t have before. And, as a side benefit, the economist explained, it would, like any other sin tax, lead to something of a reduction in the harmful behavior being taxed, in this case resulting in the country having fewer destabilizing speculative transactions to worry about, and thus more long-term market predictability.

It was another win-win proposal left to languish not because of overriding economic objections but because of political stalemate.

In addition to embracing the financial transaction tax, a proportion of additional funds brought in by increasing the capital gains tax, the top tax brackets for the highest earners, and the estate tax—as of 2012, the first $5 million a person inherits was exempt from estate tax, and beyond that the rate topped out at only 35 percent—could also be dedicated to an anti-poverty fund run by the federal government and allocated either directly to individuals through federally funded and maintained safety net systems or via state and local programs.

The lesson here should be one of possibility. Taken as a whole, some fairly mild and targeted tax increases could dramatically change the fiscal environment in Washington, D.C., making possible large-scale anti-poverty interventions and infrastructure development projects that in the early years of the century were rendered impossible by a rigid emphasis on cutting top-end tax rates.

After all, it’s hard to find money for services for the poor when the Joint Committee on Taxation estimates that because of huge rollbacks in the estate tax less than 0.2 percent of all estates—or only about 3,600 estates per year—are paying so-called death taxes to the federal government. Conversely, a whole bunch of money could be freed up by almost laughably small adjustments to the tax code: In July 2012,
BusinessWeek
reported that merely moving the taxable estate-worth threshold downward from $5 million to $3.5 million and raising the top estate tax rate from 35 to 45 percent (a maneuver that would only result in about 4,000 additional estates being taxed each year) would bring in $9 billion in extra revenue.
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Taken as a whole, these tax reforms should generate hundreds of billions of dollars annually.

WHY NIXON WAS A RADICAL AND ALASKANS GET FREE CASH

One can do a lot with that kind of money.