A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis The Problem 1. For a generation and more, we Americans have been living beyond our means. Our growing national debt now puts us on a path towards economic disaster. If unchanged, our current culture of debt threatens to bankrupt us both economically and morally. The biblical call to stewardship demands that we pass on an economic order in which our children and their children can flourish. 2. Todayâ€™s federal debts threaten not only the present generation, but also our children and generations yet unborn. Intergenerational justice demands that one generation must not benefit or suffer unfairly at the cost of another. Who is Responsible? 3. Reforming our culture of debt is not just the responsibility of government. A materialistic live-for-the-moment mentality has seduced many Christians and many Americans to live beyond their means. Churches must disciple their members toward stewardship, justice, and concern for the poor. Families must change their thinking and spending. Businesses must be concerned not only with short term corporate profits but also with long term community well-being and the common good. But government does have the primary responsibility to reverse at least one part of our mad rush to economic disaster â€“ our ever-increasing government debt. 4. In our democratic republic citizens must tell elected officials that we recognize our duty to temper our wants, and even sacrifice with regard to some of our legitimate desires: for the sake of frugal stewardship and long-term sustainability of our economy, for the sake of continuing governmental care for the poor and weak, and for the sake of doing justice to our children and our childrenâ€™s children. Our Commitments 5. How our governments and we as citizens together decide to reverse the trend of our ever growing government debt is crucial. Some proposals place much of the burden on the poor. To reduce our federal debt at the expense of our poorest fellow citizens would be a violation of the biblical teaching that God has a special concern for the poor. Effective programs that prevent hunger and suffering and empower poorer members of society must continue and be adequately funded. Our Core Proposals 6. We do not endorse any detailed agenda. Experts disagree. But it is clear that a bipartisan agreement must include the following basic elements: a. We must cut federal spending. That will include corporate and agricultural subsidies, the defense budget and salary increases of federal employees. But it does not mean cutting effective programs that empower
poor Americans or contribute internationally to economic development or the advancement of health. Neither does it mean neglecting appropriate investments in things like education and infrastructure. b. We must control healthcare expenses. This is a most difficult problem and it cannot be ignored. We must find a way simultaneously to respect individual choice, ensure quality health care for everyone, and stop spending an ever-higher percent of our GDP on medical costs. Everyone must be willing to sacrifice. c. We must make Social Security sustainable. We can slowly increase the retirement age, modestly reduce benefits for more wealthy seniors, and increase the amount of income taxed to pay for Social Security. d. We must reform the tax code. We should remove many special exemptions, end many special subsidies, and keep the tax code progressive. Our Pledge 7. Moved by the seriousness of the debt crisis and the biblical summons to intergenerational justice, we pledge to join a trans-partisan, intergenerational movement of citizens that insists that government exercise both fiscal frugality and compassionate action for the sake of the long-term sustainability of our political economy – and for an economy of care. All must sacrifice—time, wealth, entitlements—for the common good. To the young, we say: It is your credit card that will receive the additional trillions of dollars of debt— unless we quickly end ongoing federal budget deficits. To parents and grandparents, we say: We must give up some things so our children can flourish. All of us now say: We join together to answer the call to intergenerational justice.
Note: To add your signature call Josh Cradic at 484-384-2988 or email ESA at email@example.com.
A Biblical Summons to Intergenerational Justice 1.
A weight of debt burdens America. For much of a generation and
more, we Americans have been living beyond our means, steadily and irresponsibly expanding the size of the debts our children and their children will have to repay. A culture of debt has shaped the financial practices of households, businesses and governments. Household debt relative to gross domestic product (GDP) had grown from less than 30% around the early 1950s to roughly 100% around 2007.1 The debt relative to GDP of the nonfinancial business sector in the United States of America had grown from less than 40% before 1960 to very nearly 80% by 2009.2 Gross federal debt relative to GDP was reduced from a high of 121.7% immediately after the end of World War II to 32.5% by 1981. It increased again to 83.4% by 2009.3 Our national debt puts us on a path towards economic disaster. If unchanged, our current culture of debt threatens to bankrupt us both economically and morally. 2. Not all borrowing is bad. Borrowing money to invest in education or infrastructure to create future wealth is often wise. So is temporary borrowing to avoid depression. But continual borrowing for consumption is irresponsible. 3. Today’s federal debts inhibit our capacity to do justice and mercy, to offer hospitality and generosity. A legacy of excessive debt threatens not only the present generation, but also our children and generations yet unborn. To do justice between the generations we must lift the prospect of this burden. Intergenerational
http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp.html. Accessed on December 11, 2010 at 17:31. Original chart from Credit Suisse. 2
http://www.mckinsey.com/mgi/reports/freepass_pdfs/debt_and_deleveraging/debt_and_deleveraging_ full_report.pdf. Accessed on December 11, 2010 at 18:01. Exhibit A.3, page 59. 3
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/hist07z1.xls. Accessed on December 11, 2010 at 17:05.
justice requires that one generation not benefit or suffer unfairly at the cost of another. 4. The biblical call to stewardship demands a reform of our culture of debt. God placed us in creation to watch over and care for it (Gen. 2:15); to wisely use the intricately created order to shape civilizations of beauty and goodness. Wise farmers do not destroy their land; they act as good stewards to carefully preserve it for future generations. Faithful economic stewardship today demands that we pass on an economic order in which our children and their children can flourish. 5. The Creator who fashioned persons in the very image of the Triune God—Father, Son, and Holy Spirit—made us for community. We flourish in communities (Psalm 133:1; Jeremiah 29:7; Romans 12:8). For us to flourish, our communities must be healthy. While our communities are fashioned for diverse purposes – families for nurturing love, businesses for the production of goods and services and the generation of wealth, political communities for the administration of public justice – every kind of community must exercise economic stewardship which promotes justice, and to the degree possible secures a sustainable future. 6. Reforming our culture of debt is not just the responsibility of government. A materialistic live-for-the-moment mentality has seduced most Americans to live beyond their means. Families must decide to change their thinking and spending. Businesses must become more responsible citizens concerned not just with corporate profits but long-term community well-being. Churches must teach more about stewardship, justice, and concern for the poor. But government does have the primary responsibility to reverse at least one part of our mad rush to economic disaster – our ever-increasing government debt. 7. In a democratic republic like ours, citizens and governments on their behalf share the responsibility for stewarding the national treasure for the common good. Those elected and appointed to make, administer, and adjudicate laws are called 2
to exercise courageous and prudent leadership in the face of challenges like this debt crisis, and must often do so in the face of potential electoral disapproval. Citizens must share in bearing this responsibility. We must tell those whom weâ€™ve elected that we recognize our duty to temper our wants, and even sacrifice with regard to some of our legitimate desires: for the sake of frugal stewardship and long-term sustainability of our economy, for the sake of continuing governmental care for the poor and weak, and for the sake of doing justice to our children and our childrenâ€™s children. 8. Genuine community extends across the generations. Jesus taught us to love our neighbor as ourselves and then made it clear that anyone in need is our neighbor (Matthew 25; Luke 10). Regularly too the Scriptures teach that parents must act in ways that help their children to flourish (Deut. 6:7; Psalm 78:4; Joel 1:3) , and that children bear a responsibility of care for their parents (Exodus 20:12; Deut. 5:16; Mark 7:9-11). To place our current expenditures on the credit cards of our children and grandchildren is a violation of the biblical summons to intergenerational community and justice. It also places our extravagant consumer desires above the health and wellbeing of our parents and grandparents. The call to intergenerational justice is no less valid for governments and citizens than it is for parents and children, business owners and business employees. Parents must do justice to their children and children to their parents. One generation in a business has responsibilities to the preceding and succeeding generations. The same is true for governments and citizens. 9. The Scriptural material on the land in ancient Israel tells us much about the biblical understanding of economic justice. In an agricultural society, where land was the primary capital for producing wealth, God demanded that every family enjoy their own land. God also insisted that every fifty years, the land should return to the descendants of the earlier owners so that future generations would have the means to flourish (Leviticus 25). To spend now on self-centered consumption in a way that undermines the economic well-being of our 3
descendants violates the biblical summons to justice. Again: the call to intergenerational economic justice is no less valid for us in our political communities than it is for families and markets. 10. But how our governments and we as citizens together decide to reverse the trend of our ever growing government debt is crucial. Some proposals place much of the burden on the poor. To reduce our federal debt at the expense of our poorest fellow citizens would be a violation of the biblical teaching that God has a special concern for the poor. The Bible is replete with passages that teach that God and Godâ€™s people demand justice for and compassion to the poor, the needy, the widow, orphan, the foreigner (Exodus 22:22; Deut. 10:18; Zech. 7:10). A biblically grounded deficit reduction program will not balance the budget on the backs of the poor. Rather it will make sure that effective programs to offer relief and empower poorer members of society will continue and be adequately funded. (That includes programs like the following: the Earned Income Tax Credit that rewards work; food stamps that reduce hunger and malnutrition; unemployment insurance for those looking for work; the child tax credit that reduces child poverty.) 11. Those of us who are more wealthy have the moral obligation to contribute proportionately more of our resources to the administration of public justice through paying taxes. Taxing persons with higher incomes, indeed increasing their taxes beyond the present level, is both necessary at this historical moment, and just. We should all contribute to the common good, but those blessed with more economic resources rightly contribute more. Governments must aggressively eliminate waste and inefficiency in their programs, remove many tax loopholes and reduce entitlement programs, but those changes alone, without increased taxes, will not adequately reduce our gross federal debt. 12. The challenge of the present moment and the biblical summons to intergenerational justice demands that we build a trans-partisan movement of 4
citizens that insists that government exercises both fiscal frugality and compassionate action for the sake of the long-term sustainability of our political economy – and for an economy of care. And such a movement for intergenerational justice must itself be intergenerational. In particular, we need seniors and youth working together, and speaking out together. All must sacrifice—time, wealth, entitlements—for the common good. To the young, we say: It is your credit card that will now receive the additional trillions of dollars of debt— unless we reduce the gross federal debt now. To the parents and grandparents, we say: We must give up some things so our descendants can flourish. To all we say: Let us answer the call to do justice, together.
Concrete Proposals for Intergenerational Justice And the American Debt Crisis1
To end the annual budget deficit and substantially reduce the national debt in a just way, we must both reduce our annual expenditures and also increase government income in a way that empowers rather than harms the poorer members of society. That will require: I. Cutting Some Discretionary Federal Expenditures a. Agricultural programs b. Defense budget c. Symbolic but useful changes II. Controlling Medical Expenses III. Making Social Security Sustainable IV. Fundamental Tax Reform V. Procedural changes that make these changes politically doable
Where we embrace the provisions of the National Commission on Fiscal Responsibility and Reform (Dec. 2010), we refer to the section and page.
I. CUTTING SOME FEDERAL EXPENDITURES Among the next steps we support are: a. Reducing Agricultural Subsidies Reduce net spending on mandatory agricultural programs by at least $10 billion from 2012 through 2020 (4.2, p. 45). Many existing agricultural subsidies benefit the private interest of large American farmers, hurt very poor farmers in poor countries, and do not serve the public interest in a significant way. b. Reducing the Defense Budget Reduce the defense budget by at least 15%. This would save $_____ billion over 10 years.2
c. Reviewing Federal Workforce Retirement Programs (civilian and military) Bring Federal Workforce Retirement Programs into line with pension benefits in the private sector. The goal with this change is to save $70 billion over 10 years (4.1, p. 44). d. Making changes that have a smaller direct effect but significant symbolic value • Reduce congressional and White House budgets by 15% (1.10.1, p. 26). • Impose a three year freeze on the pay of members of Congress (1.10.2, p. 26). • Impose a three year freeze on the hiring of federal workers and civilians in the Defense Department (1.10.3, p.26). • Reduce via attrition the size of the federal workforce by 10% by 2015. (saves$13 billion in 2015) (1.10.4, p. 26). • Eliminate all congressional earmarks (1.10.7, p. 27). II. CONTROLLING MEDICAL EXPENSES Expanding federal health care spending presents perhaps our single largest fiscal challenge. Significant reductions in the rates of increase of both the total national expenditures on health care and the federal government’s health care expenditures are necessary. Among the next steps we support are: a. Malpractice Reform Current malpractice suits both increase doctor’s malpractice insurance and encourage over-utilization of diagnostic and related services (“defensive medicine”). The commission recommends several good concrete steps and also urges Congress to impose statutory caps on punitive and non-economic damages (we agree). This could effect a saving of $17 billion through 2020. (3.3.12, p. 39)
In constant dollars a 28% defense budget reduction was achieved between 1989 and 1998 (Adams and Leatherman, Foreign Affairs, Jan-‐Feb 2011).
b. Reform of Medicare’s Cost-Sharing Rules Currently, cost-sharing for most services in Medicare is low and the result is over-utilization of health care. Therefore, we should replace the current hodge-podge of premiums, deductibles and copays with a single combined annual deductible of $550 for Part A (hospital) and Part B (medical care) plus a 20% uniform co-pay on health spending above the $550 annual deductible. We support a reduction in co-pay to 5% of costs after a person paid $5,500 and the capping of co-pay at a total of $7,500 per year. This could effect a saving of $110 billion through 2020. (3.3.2, p. 37) c. Restrictions on Coverage in Medicare Supplemental Insurance Today, Medigap plans that piggyback on Medicare and cover most of the cost-sharing encourage overutilization of services. We support prohibiting Medigap plans from covering the first $500 of cost sharing and limit coverage to 50% of the next $5000 in cost sharing. This could effect a saving of $38 billion. (3.3.3, p. 38) d. Extension of the Medicaid Drug Rebate to Dual Eligibles in Medicare’s Part D Currently, drug companies must provide substantial rebates for drugs for Medicaid beneficiaries. Medicaid beneficiaries who are also eligible for Medicare should receive the same rebate. This could effect a saving of $49 billion through 2020. (3.3.4, p. 38) e. Reduction of Excess Payments to Hospitals for Medical Education This could effect a saving through 2020 of $60 billion. (3.3.3, p. 38) f. Elimination of State Gaming of Medicaid Tax Gimmick This could effect a saving of $44 billion through 2020. (3.3.8, p. 39) g. Establishment of a Mechanism to target and enforce the long term goal of limiting federal health care spending to growth in GDP plus 1%. (3.6, p. 41) III. MAKING SOCIAL SECURITY SUSTAINABLE Without Social Security, 50% of all seniors today would be poor. Because of Social Security, only 10% of seniors fall below the poverty line. 70% of Social Security’s benefits go to retired workers and their families; 30% go to disabled workers and survivors of deceased workers. Currently, however, Social Security is unsustainable for two reasons: 1) When it started under Franklin Roosevelt, the average life expectancy was 64 and the earliest retirement age was 65. Today, on average, Americans live 14 years longer, retire 3 years earlier, and spend 20 years in retirement. 2) In 1950 there were 16 workers paying into the Social Security fund for every beneficiary; today there are 3 and in 2025 there will be only 2.3 workers paying in for every beneficiary. Since the system is “pay as you go,” that is unsustainable. Modifications to this essential program are needed. Among the next steps we support are: a. Increasing the allowable age for early and full retirement Under current law, the normal retirement age will be 67 in 2027. The Commission recommends gradually increasing the normal retirement age to 68 by 2050 and 69 by 2075 and also increasing the early retirement age to 63 and 64 in lock step. (5.4, p. 50) We support a more urgent change, 3
increasing the normal retirement age to 67 by 2020, 68 by 2030, and 69 by 2040, and also increasing the early retirement age to 63, 64, and 65 in lock step. b. Creating a hardship exemption for those who cannot work beyond 62 but do not qualify for disability benefits. (5.5, p. 50) c. Increasing the taxable maximum of the Social Security tax progressively over five years, eventually subjecting all income to the Social Security tax. Currently, only the first $106,800 of income is taxed for Social Security benefits. The Commission recommended slowly increasing that amount to $190,000 by 2020. (5.6, p. 51) We favor more change: progressively over five years, move to subjecting all income to the Social Security tax. d. Making the retirement benefit more progressive Currently, a person’s amount of Social Security is calculated by the following formula: people receive 90% of the first $9000 of (wage-induced) average lifetime income; 32% of their next $55,000 and 15% of their remaining income. That formula benefits workers who earned less over their lifetime. The commission recommends changing the formula so it benefits lower wage workers even more and decreases the benefit for the highest paid. The new formula: 90% on the first $9000; 30% up to $38,000; 10% up to $64,000 and 5% above that. (5.5, p. 49) e. Including all newly hired state and local government workers in Social Security and use a more accurate index for the annual Cost of Living Adjustment. (5.8 and 5.7, pp. 51-52) f. Establishing a new minimum Social Security benefit equivalent to 125% of the poverty level for those who worked at least 30 years (and proportionately less for those who worked 10-29 years), to help prevent the elderly from falling into poverty. (5.2, p. 50) g. Enhancing Social Security benefits for the very old and the long-term disabled. More people live past 85 today and many outlive their personal retirement resources. Twenty years after eligibility for Social Security, there would be a benefit increase of 5% of the average benefit. (5.3, p 501) IV. REFORMING THE TAX CODE The current federal tax code is hopelessly confusing, complicated, and unfair. Because of thousands of exemptions for all kinds of things, people are not treated equally and the treasury loses $1.1 trillion every year. We agree strongly with the Commission that “those of us who are best off will need to contribute the most. Tax reform must continue to protect those who are most vulnerable and eliminate tax loopholes favoring those who need help least.” We should “maintain or increase progressivity in the tax code.” (p. 28) Among the next steps we support are: a. Eliminating most of the special exemptions (“Tax expenditures” is the technical phrase) in the tax code. The result would be a much more fair, less complicated tax code that would bring in hundreds of billions of additional dollars. Some propose eliminating all exemptions, but the Commission rightly recommends retaining the following: 4
i. Support for low-income workers and families (e.g. the child tax credit and earned income tax credit) ii. Mortgage interest only for principal residences (we would narrows this to only one house and only on the first $300,000). A house of one’s own encourages family stability. iii. Employer provided health insurance iv. Charitable giving (to encourage the flourishing of civil society) v. Retirement savings and pensions. (2.1 and 2.1.3, pp. 29-30) b. Taxing capital gains and dividends at ordinary income rates In 2010, the top rate for capital gains and dividends was 15% instead of the significantly higher income tax rate. The change would demand that those more able to pay should pay more. (2.1.3, p. 31) c. Removing all special subsidies for different industries (2.2.2, p. 33) d. Retaining the current tax brackets There are currently six income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%. The Commission favors lowering the upper limit and having just these brackets: 12%, 22%, 28%. (p. 31) That would slightly increase the bottom rate and reduce the top two rates. That seems to ignore the Commission’s principle that those who are best off should contribute the most. We also favor a seventh tax bracket of 45% for persons with income over five million dollars. e. Retaining the estate tax We would support an exemption of the first $2-4 million and a rate of 40-50%. A substantial estate tax encourages charitable donations, strengthens civil society and recognizes that society has helped make it possible for some to acquire great wealth. f. Modestly increasing the amount of Social Security income subject to the federal income tax for seniors with substantial additional income. Currently, individuals with combined income of $25,000 – $34,000 pay income tax on up to 50% of their benefits and those with combined income over $34,000 pay income tax on up to 85% of benefits. For couples filing jointly, the levels are $32,000 - $44,000 (50% of benefits are subject to income tax) and above $44,000, 85% may be taxable. g. Carbon tax Introduce a carbon tax (on oil, gas, coal) and use at least half of this income to lower the bottom three income tax brackets. V. PROCEDURAL CHANGES Many if not all of these changes will be politically difficult. To strengthen the chances of their being implementable, the Commission recommends several procedural changes. Among the procedural changes we support are: a. Capping discretionary spending through 2020
Return overall non-defense discretionary spending to pre-crisis 2008 levels in real dollars in 2013 and then limit overall discretionary spending growth to half the projected rate of inflation. (1.1, pp. 20-21) There should be one crucial exception: critical safety net programs (e.g. food stamps, unemployment insurance) and educational programs to empower poor folk (e.g. Head Start, Pell grants for poor college students) should expand as needed. b. Enforcing the spending cap by requiring a separate non-amendable vote in the House and a 60vote point of order in the Senate to spend above the cap. (1.3, p. 22). c. Establishing a “Cut-and-Invest” Committee to cut low-priority spending, increase high-priority investment, and consolidate duplicative federal programs. Currently, the federal government funds more than 44 different job training programs through nine different federal agencies and at least 20 programs at 12 agencies dedicated to the study of invasive species. Consolidation could save money.
February 15, 2011