Neera Tanden is the President of the Center for American Progress. Before working at the Center, she was the policy director for Hillary Clinton’s 2008 presidential campaign and the domestic policy director for President Obama’s 2008 campaign.
The first portion of this interview was conducted via email, while the second was conducted in person. While Mrs. Tanden’s written responses appear unedited except to conform to the Observer‘s style guide, her verbal responses have been edited for length and clarity. Where appropriate, hyperlinks have been added to serve as citations.
TKO: Is economic inequality a problem?
NT: Growing inequality is a stumbling block for Americans trying desperately to climb into the middle class – or fighting just to stay there. But inequality isn’t just a problem for individuals, it impacts our overall prospects for economic growth. Economists now are identifying the myriad ways inequality has impacts at an economy-wide level, such as limiting access to quality education, creating conditions for financial system instability, undermining consumer demand and skewing the political or policymaking process. Unless we act now our grandchildren will work longer and harder than we do, only to get half as far.
TKO: To what extent can/should the government be involved in reducing inequality?
NT: The government is heavily involved in our economy through regulation, taxation, investment and setting policies like the minimum wage. In order to reduce inequality, the government needs to use those tools and smart policies to help middle and working class families to create the environment for economic opportunity and growth.
Republican Congressman Paul Ryan recently proposed another budget that continues the well-worn conservative path of offering massive tax cuts for the wealthy while proposing massive cuts to health care and nutrition aid for the poor, investments in things we know are good for the economy like scientific research, infrastructure and education. Simply put, it will exacerbate inequality and make it harder for families to get ahead – not to mention the stream of soon-to-be college graduates entering the job market. So the government has a lot to contribute to strengthening the economic environment.
Progressives believe that we need to be investing in America’s middle and working class families in order to expand economic growth and reduce inequality. The government should be involved in passing policies like raising the minimum wage, expanding paid sick days, introducing apprenticeship programs and helping young people to refinance their student loans.
TKO: President Obama portrayed growing economic inequality and a decline in economic mobility as a“fundamental threat” to the American Dream. How do you assess this claim/ Is he right?
NT: When working Americans can’t earn a living wage they can’t hope to build a better future for their families. The rising frustration over inequality is rooted in the nagging sense that no matter how hard many Americans work, their kids won’t be better off than they were.
When wages stagnate, people can’t buy more products, which hurts economic growth. We’re a 70 percent consumption economy, which means that people in the US consuming products fuels a lot of our growth. So when people can’t buy more, it hurts economic growth. I think that is a fundamental problem for us right now. If wages went up, demand would accelerate, ensuring more growth in the US.
TKO: What are the next steps you see the Obama administration taking in order to mitigate economic inequality? What can it do versus what should it do?
NT: The Obama Administration has supported many policies that would mitigate income inequality, now we need Congress to take action and pass legislation.
First, we should raise the minimum wage to $10.10 an hour, which will lift 28 million Americans out of poverty. New research from the Center for American Progress also shows that by raising the minimum wage, fewer people will rely on our food stamps and our government will save $46 billion over the course of a decade.
We also need to address the disparity between the corporate recovery and the recovery as it’s been felt by workers. In 2013 corporations made record gains, but real hourly wages have been stagnant. In 2012 those wages were no higher than they were in 2000. With the share of our national income increasingly going to capital over labor, we should look for new opportunities to expand corporate profit sharing with workers.
Another thing we can and should do is improve our workforce by expanding our use of apprenticeships. Apprenticeships are a form of paid worker training that could be expanded into new sectors like IT, high-tech manufacturing and health care. Existing programs have been shown to boost workers’ lifetime earnings by $300,000 with little or no educational debt.
Refinancing student loans, supporting early childhood education, ensuring collective bargaining rights and additional programs to help people save for retirement are will also help to make an economy that works for all Americans.
TKO: You have served in both the Obama and Clinton administrations. How have their approaches to economic inequality been similar and how have they been different?
NT: Working at a time of increasing globalization and interdependence across national borders, and contending with the rising power of the conservative movement and the Reagan revolution, President Clinton put forth his vision of opportunity, and a policy agenda to match it, that sought higher levels of overall growth in the private economy and necessary investments in human capital, education and social programs like health care to ensure that rising prosperity really did lift all boats.
The core of his “new economic opportunity agenda” was his middle class bill of rights in his campaign, which called for reducing taxes on the middle class and raised them on the wealthy, targeted deficit reduction to lower interest rates for middle income families and expanded trade with other nations to increase American exports and good paying jobs.
Obama argued at the outset of his presidency that America is facing difficult times but has enormous resources and great people to draw on if we make the right choices.
President Obama’s overall framework called for energetic national and international action to enhance the life opportunities of Americans and position our economy for future success by pursuing five interrelated goals: repairing the broken financial order; rebuilding American infrastructure; investing in education, science, technology and innovation; investing in health care to expand access and lower health care costs; and reducing deficits.
With the addition of financial reform, this agenda is very similar to the Clinton model advanced in the 1990s. This is no accident since both presidents share a commitment to the values of earlier progressives and a belief that government can be a positive force for advancing individual opportunity and national prosperity.
Below are Tanden’s in-person responses. Again, these responses have been edited for length and clarity.
TKO: Earlier in the week, Ezra Klein told us that “the idea that the government can ever not be involved in this is a fallacy that’s often promoted by people who simply prefer the government’s current kinds of involvement to the possible alternatives.” What are your thoughts on that?
NT: I would agree totally. A perfect example of that: at what rate you set taxes has a huge impact on inequality. When you lower tax rates at the high end, you increase inequality, so it’s absolutely the case that the government is going to have an impact.
The government acts, and today it acts in some ways that exacerbate inequality and some ways that minimize inequality. The cutting of capital gains tax rates in the late 90’s exacerbated inequality; investing in head start reduces inequality. So unless the government is at zero, in which case it would be allowing a lot of inequality, it is acting one way or the other.
TKO: One of the interesting proposals out there is to pro-rate the capital gains tax rate to how long you hold the stock, which we currently sort of already do: right now if you hold stock for a year it’s taxed at 15 percent at most as opposed to being taxed as regular income if you hold it for less. But this idea would be more like if you hold it for a day it’s taxed at 99 percent and if you hold it for a week it’s closer to 80 percent and so on. It would effectively eliminate flash trading, but it would also reduce speculation more generally. What are your thoughts on that?
NT: One of the problems we have – and Austan [Goolsbee] mentioned this [in his April 10 keynote address] – is that the returns on labor versus on capital. Returns on labor have basically cycled between 63 and 65 percent between 1935 and 2000 with returns to capital about the same; now, returns to labor are more like 58 percent and returns to capital are higher.
Tax preferential treatment for capital gains is always going to skew wealthier because most people don’t have, well, capital gains. People with capital gains are concentrated at $500,000 and above.
TKO: Regarding the idea that there’s so much of the nation’s wealth being held in capital and stocks…a lot of that is retirement and pension plans. In other words, ordinary Americans hold a lot of that stock. Does this suggest that taxing capital gains might not be such a good idea when it comes to reducing inequality?
NT: That’s a fair point, but [wealth held in the stock market] is not equally distributed. Very few low-income people have a pension; it’s definitely middle-income people who have a pension.
And while it’s absolutely the case that part of that is pensions, [capital] is not as equally divided as labor. Almost everyone works, but returns to capital skew much higher up – billionaires have a lot more capital with about the same amount of labor. So while I’m not saying that it doesn’t affect the middle class, it skews much higher up.
TKO: Regarding the McCutcheon [v. Federal Elections Commission] decision: It seems as though the debate is between two definitions of free speech. As long as you define money as speech it gets really hard to defend any sort of contribution limit; if you think that the amount of money you have shouldn’t affect the amount of speech you have, the ability to be “louder” is, then, unequal or unfree speech and it’s hard to justify any sort of private contributions and would lead you to a more Lawrence Lessig-style public financing system.
Is there a potential to make that second argument – to redefine what is free speech – in order to push back against cases like McCutcheon or, if not, how do you make the case for individual contribution limits with the McCutcheon definition of money as being speech?
NT: So the Court decided about 40 years ago that money was speech and then set out a complicated rationale as to how to regulate money as speech, but the fundamental error was to define money as speech. Now, we had a system of campaign financing where you could think that money was speech and still regulate it, but I would agree that this would be a whole lot easier if we didn’t define money as speech – and I think it’s ridiculous that we do.
We don’t think that going to Target is a “right;” I’m not able to demand a Target in my neighborhood – there’s lots of things that are consumption/economic actions that we don’t think of as free speech rights. So there’s that fundamental error, but I think the challenge with the McCutcheon decision – and I think it’s a horrible decision – from a position of corruption, it’s a big problem when individuals can give so much money to individual politicians. I think the Court was in the best-case scenario naive to think that public corruption is not a standard by which we should regulate activity where necessary.
Now to the question as to what do we do about it, that’s a really tough thing with the Supreme Court now. It would be helpful to get another justice, which isn’t really up to us. At the state level, we’ve been doing work around the issue of companies going into elections and spending unlimited amounts by lowering the standard by which someone could sue for shareholder fraud. Also, the four dissenters in McCutcheon and Citizens United have never agreed to use these cases as precedent, so there’s potential if someone switches. But this issue is one of the reasons you can see why it matters who the president is.
This is a big problem in our democracy. In Washington, the people with money have a lot more say than the people without money. We work at a progressive think tank and part of what we do is to try to provide a voice for people who don’t have a lobbyist. So the system is really skewed towards the wealthy.
TKO: In your talk, you mentioned a wealth tax. If you could wave a magic wand and pass it, how would you go about implementing it and what exactly would it do?
NT: A wealth tax more accurately reflects the assets of people because wealthy people have huge wealth – accumulated year-to-year – and can have lower incomes. So you could have a pretty low wealth tax and get a lot of revenue. So [in my talk] I was pointing out that Thomas Piketty [author of Capital in the Twenty-First Century] has argued for a global wealth tax. But you’ve got to increase the income tax.
One of the things we have in our tax system that benefits the wealthy is the systems of deductions. So with, for example, the mortgage deduction, you take the money out of your income so it doesn’t report as income, basically deduct it from your taxes. But if you’re at a million dollars that’s a 33 percent tax cut for you because you’re hitting the marginal rate; if you’re middle class and you hit an 18 percent tax rate, then its 18 percent for you. That’s an upside-down tax break. So we argue for converting things like the mortgage deduction to tax credits instead of more deductions because then it would be less of a skew to the wealthy.
So there are things we could do, short of a global wealth tax, to make sure more and more high income people are paying more. We always hear of these arguments about, “Oh, the rich will get up and leave” – we really have no evidence that higher taxes, barring something like a 90 percent confiscatory tax, has any net negative economic effect.
TKO: Austan Goolsbee, in his talk, was talking about the difference between the politics of economic inequality and the economics of economic inequality, and it seems as though CAP is involved in both: you do a lot of research and data-driven analysis and then a lot of how you talk to the American public about this as an issue. How do you bridge that divide? Where are the tensions between the politics and economics of this issue?
NT: In my talk I tried to focus on the convergence of this issue. I think when a lot of liberals talk about economic inequality as this issue of polarization of the top and bottom almost as if to say we just wish there were fewer rich people, which in my mind is wrong. I would be happy with doubling rich people in the United States if we could magically grow so that every American’s income went up five percent. Austan talked a lot about relative incomes and a lot of conservatives scoff at this and say that we just hate rich people; it’s not that. We have a real challenge in this country where the rewards in the economy are moving up, and not to everybody.
So I think the way we talk about it is how to expand the middle. Not just care about the poor or just hate the rich, but how to expand the middle. And we talk about it because that’s actually the economic growth argument, because middle class people buy things. They’ll stay at the Kenyon Inn and then more people will get hired and so on.
TKO: So on relative inequality. In our public policy capstone course we were talking about how the way the poverty line was originally set was pretty arbitrary. It’s an absolute measure of income and the argument’s been made that we should be measuring poverty in relative terms, say, for instance, half the median household income. So if the median moves, so does the poverty line, with the idea that it’s not just about survival; it’s about an ability to participate in society. So even if you have a cell phone and a television and a refrigerator, you can’t afford college or SAT prep or all of those other things that are really stratified.
NT: Yeah, and this is why I wanted to talk about culture and the whole cultural argument. From my perspective over the long term, what I think is so worrying – I hear all of these arguments along the lines of “Oh, the poor aren’t really poor because they have a cell phone and air conditioning” – here’s where I think we should be really concerned:
You have more and more low-income children who are basically growing up with one parent and have a lot less social support than they used to have. And conservatives say, “well that’s because people have loose morals and they’re not getting married.” There’s a great book coming out called Marriage Markets which talks about how what’s really happening is there’s not much opportunity. So these women are effectively saying, “Why am I going to marry some guy who’s only going to become more of a burden? I’m just not going to get married.” Now, in some ways that’s a bad decision in the first place because even if they weren’t working they’d be more involved in the life of their kids, hopefully.
But there are so many ways in which we think there have been so many advances, we lose sight of ways in which we’re moving backwards. Low-income kids are falling further behind. There’s a great study; they have 30 million less words that they hear from their parents before the age of five. So on a lot of these issues, there’s the technology argument but the problem is that low-income people are doing much worse than they used to in some ways because there’s no social support in these families for people who are struggling.
TKO: So what are your thoughts on unpaid internships?
NT: This is a hard thing. We have paid internships at CAP; they don’t pay minimum wage, but they’re heavily stipended. It’s a challenging issue, because you do want people to get the experience, but you don’t want to make it a labor cost to the firm because kids only have three months and if it’s just a three-month experience, no one’s going to hire that person. They’ll just prefer not to.
So we have an internship program at CAP that does pay some amount of money; at the same time, we do a lot of things for them. If they were regular CAP staff we wouldn’t do the things we do for them that we do – events and making it an educational experience, etc. So I think you have to get the balance right. I definitely think it’s a problem. I mean, I’ve had unpaid internships and it was a little bit of an economic hardship, but I got a lot of value out of those so it was worth the cost.
I think we should move away from unpaid internships, but it’s hard because you don’t want to lose the value.
TKO: What would you think about federally subsidizing unpaid internships?
NT: There are all these things that poor kids don’t have that rich kids have. I see it more and more. People call me and they say “Hey, I’d like my kid to get an internship” and I have to say, “You know what? I’d prefer to take someone [on their merits].” I grew up without that wealth and connection so I’m always like, “Okay, why are you calling? This is annoying.”
The well-off in the US have so many advantages. It’s not just the internships: they have college prep; they have tutors. And what’s fascinating is that the distance between the well-off and the middle class is growing, too. So even just having a middle class lifestyle now is not going to get you [the same opportunities it used to].
TKO: The recent FCC net neutrality decision basically hinged on the definition of the Internet as a commodity and not a utility. Do you agree with this definition, and how does this relate to economic inequality?
NT: So I’m a liberal, but I’m not an actual socialist. So my theory of this is that you do want to have the market work as much as possible. The government should step in when the market fails – health care is a perfect example; large-scale market failure there.
So while I see that the Internet is not a life or death issue, we’re redefining basic minimums in such a way that, at the end of the day, we’re undermining what we really mean by equal opportunity.
Look what’s happening in education. The whole movement in education to have technology be ubiquitous because you can personalize the education experience for your kid. So your third grader is having a hard time doing math, you have a range of technologies you use at your house to basically learn more. If you think of Internet access as a utility, every kid has Internet. If you think of Internet access as a commodity, there are all these kids who aren’t going to have access to that technology. And if you make it voluntary, there will be well-off kids who have access to four computers at home and two PDAs, etc.
In a world where we think that broadband access should be universal it seems to make more sense to think of the Internet as a utility as opposed to a commodity, but that’s not how everything’s going.
TKO: One last quick question: we noticed a #guesswhoPresidentsidedwith this morning on Twitter with reference to [a debate Tanden had with Austan Goolsbee] regarding the individual mandate. How does it feel to win an argument in front of the President?
NT: It was so great to win an argument with Austan. So I was on Hillary Clinton’s campaign as her policy director and he was on Obama’s campaign. So we had a number of fights during the primary process over the individual mandate, and then I joined the Obama campaign and was in the administration. And then, as we know, Obama wound up supporting the individual mandate.
It wasn’t really me; it was a lot of people making the case – and it was actually the best policy so that’s why [Obama] did it – but Austan lost and I won.