The United States is on an unsustainable fiscal path, something both political parties can agree on. The 2007-08 financial crisis and the resulting Great Recession have caused millions to reevaluate the worth of money. Since the turn of the century, we have drifted upon a dysfunctional form of capitalism. Capitalism is not the enemy nor has it ever been, capitalism is what makes the American Dream a reality. Capitalism is meant to drive innovation and creativity and make people fiscally responsible but allow them to take risks and follow their heart. Unfortunately, that form of capitalism no longer exists, at least not for the middle and lower classes. Since the crisis, young people fresh out of college with tens of thousands of dollars in debt can’t find adequate jobs, people (luckily fewer and fewer) are dependent on unemployment benefits, and a great majority of us are underemployed making us count our spending at the weekly grocery store visit or at the pump. President Woodrow Wilson once said, “Every man sent out from his university should be a man of his Nation as well of his time.” That is no longer the case, again, for only those of the lower and middle classes. Income inequality has plagued our ideal form of capitalism and has weakened our economy. It’s time to fix this. Immediately following the crisis, President Obama established a bipartisan deficit reduction commission headed by former Wyoming senator Alan Simpson and President Clinton’s former chief of staff Erskine Bowles. Their proposal began with the following eloquence, “Throughout our nation’s history, Americans have found the courage to do right by our children’s future. Deep down, every American knows we face a moment of truth once again….We have a patriotic duty to keep the promise of America to give our children and grandchildren a better life.” That time is at our doorstep and we owe it to each other and to future generations to change our irresponsible and greedy behavior.

Let’s start with our oppressive debt. Ten years before the Great Recession, the United States had large surpluses and Alan Greenspan (Fed Chairman at the time) thought the entire national debt could be paid off with those leftover accounts. Greenspan was also a fiscal conservative who wanted a smaller government and fewer social programs and protections. What he probably knew but didn’t care to admit publicly was that debt and some forms of regulations can be beneficial. Debt fuels Treasury Bills, if there was no government debt, there would be no bills to buy and sell. That’s how the Federal Reserve increases or decreases interest rates, through the buying and selling of Treasury Bills. There are several other reasons why debt is beneficial to a healthy economy but few would argue our debt is healthy now. I will now indulge on a solution to solve the debt crisis: the balanced-budget multiplier. Our debt will never completely disappear and there are far greater actions that need to happen before we place limits on the debt ceiling and shut down the government (Senator Cruz’s most admirable moment in his career) so we must increase taxes and increase expenditures therefore not adding to the current deficit and stimulating the economy by default.

We should not have tax cuts that target the top and weaken social protections for the lower and middle classes. The bulk of our deficit can be related to President Bush. His tax cuts, the expensive wars in Iraq and Afghanistan, and the Medicare drug benefit were the three major factors leading to our budget’s demise. A fifth of the 2012 budget deficit can be attributed to the Bush tax cuts. The Department of Defense and the CIA spent taxpayers’ money as if the Cold War was still happening. Our military expenditures had exceeded that of the rest of the world. For example, one $383 billion Lockheed Martin F-35 Joint Striker Fighter cost half of the entire Obama stimulus package. Our biggest failure during the first decade of the twenty-first century was instead of raising taxes, we paid for these expenditures on credit. Some said “we spent money on weapons that didn’t work against enemies that didn’t exist.” Were they right? Many economists wanted to “reverse the bush tax cuts for millionaires, end the wars, scale back on defense spending, allow the government to negotiate drug prices, and put the country back to work.” (Stiglitz, 264) I couldn’t agree more but allow me to go into more detail on how we can pick ourselves up and return to the ideals of the Great Society declared by President Johnson.

Let’s create and implement a fair tax system. Up until President Kennedy’s tax cuts, the wealthy were paying close to 70% of their income to the federal government, a fantasy only diehard progressive liberals dream still existed. In order to develop a proper tax system, it’s important to see where the money is. The top 1% receives close to 40% of our nation’s income. If we raise taxes on the very rich, even slightly, we create millions in revenue. No matter how much we tax the lower and middle classes, we don’t make much. The money is with the wealthy, i.e. the private corporations. Income inequality is at its greatest in the United States so why isn’t it so detrimental elsewhere? Taxes. In the European Commission, France, Germany, Spain, and the UK there is a financial transactions tax. A tax on all financial transactions, like foreign exchanges. The United States needs to develop such a tax, and even at a low rate it will decrease toxic mortgages financial companies use to pollute the economy, reducing efficiency and growth. We also need to stop giving away expensive and valuable resources such as oil and gas at below-market prices. Let’s design a public auction on these resources to maximize revenue and give back to the public. We need to tax oil companies, not only to invest in renewable energy and battle the larger problem of climate change but because they are polluting our water and air. Taxing oil companies on pollution discourages the act and creates a negative externality. For example, we could mimic the Kimberley Process Certification Scheme (KPCS) set up by the United Nations General Assembly in 2003 which developed certifications “to ensure that diamond purchases were not financing violence by rebel movements and their allies seeking to undermine legitimate governments.” Let’s implement certifications and tax havens for oil distributors to ensure no companies are financed through pollution and corruption.

Some welfare programs for the poor have been cut while subsidies for corporations (ex: oil companies) have increased. Corporations say they do things in the public interest but many are for a smaller government which cannot be in the interest of the whole, they also receive large subsidies but want reduced spending which doesn’t make any sense. It is in our nature that self-interest shapes our judgments of fairness and equality, individuals do it and so do corporations. Regarding the balanced-budget multiplier, if done carefully, the increase in GDP can be two or three times the increase in spending. The national debt will be reduced slowly in the long-run, but placed on the back seat with more focus on employment and progressive taxing, driving imagination and enterprise. How do we decide what to cut and what to continue funding? We place more emphasis on expenditures which have large multipliers (where each dollar of spending generates more GDP). To put it simply, we raise taxes on low multipliers and cut taxes on high multipliers. The middle and lower classes spend almost all their money in proportion to the very rich. Spending money on foreign contractors in Afghanistan doesn’t add to the economy while paying unemployment benefits does because those individuals spend almost every dollar they receive. Ideally, increases in GDP have the potential to counteract the higher taxes on the wealthy. For example, government programs that increase rent taxes go disproportionately to the rich. In sum, raising taxes on the very rich and other low multipliers reduces spending by up to 80 percent while lowering taxes on the bottom increases spending at near 100 cents on the dollar. This, along with the aforementioned suggestions, will reduce the harmful income inequality, stimulate the economy, shrink the debt, increase GDP, while creating jobs and inspiring both growth and opportunity.

After analyzing several monetary policies and presidential speeches in the past few months as well as countless pieces of literature on fiscal responsibility, I have learned how we can improve ourselves to make my proposal a reality. In order to give everyone a fair opportunity we must curb the financial sector, after all, our lack of financial transparency and liability caused the Great Recession. Financial institutions that are too-big-to-fail are lethal to the American integrity. We must enact restrictions on leverage and liquidity. Excessively high interest rates or even unpredictable interest rates should not happen. The government should place restrictions on predatory lending and abusive credit practices and require competition to ensure fairness and price control. Offshore banking is also detrimental to our prosperity. The very rich should not be investing in the Cayman Islands but rather in job creation and higher education. Entrepreneurs should continue to stay imaginative and internally-minded even as a CEO.

Once financial institutions are kept in check with regulations that enforce competition and improve corporate governance we can focus on homes and student loans, dilemmas faced by millions of Americans. Asymmetry in the market is never beneficial to both the borrower and the willing lender. Lenders should carry the bulk of the consequence of monetary mishaps, not the borrower. The lender is supposed to have a better idea of the market but if the lender knowingly lends money to those who can’t repay the loan, the borrower will be at fault and the lender will be virtually punishment-free. Our bankruptcy laws need reform to discourage capricious lending at all levels including mortgages and student loans. I have already discussed a more progressive income and corporate tax system but there needs to be fewer loopholes too. The very rich get to play with exemptions, exceptions, and preferences making many pay less in taxes than those making much less annually. A new corporate tax system should encourage job creation and domestic investment.

Socially, more Americans need to know how to save and spend money properly, higher education should not be as expensive, and health care should be accessible and affordable to all. College tuition should be tax exempt with no limits; making college cheaper in the long-run without lowering the price. We need government incentives for the poor to save their earnings, like matching grants or first-time car owner or homeowner programs. Americans are financially unstable because they are either unemployed or ill, in many cases both. The United States spends more per capita on healthcare than any country in the world but it is the most inefficient and poorest-performing of the Global North. We don’t receive value and effective care for our money. In the healthcare industry which I could write a book about, there exists over-doctoring, hospitals with excessively fancy and expensive equipment, brand loyalty, and a lack of price competition with prescription drugs, specialist care, and physician care.

In sum, our social programs such as workers’ collective action and affirmative action should be supported to eradicate our legacy of discrimination and injustice among workers and citizens. Public investment and innovation should be at the peak of our spending, not defense. There is hope for a better world for our children and grandchildren but it must start now and it must be swift and concise.