New report from Inclusive Prosperity Commission, transatlantic group convened by the Center for American Progress, will present policy proposals to promote broadly shared prosperity throughout the United States
Washington, D.C. — The Inclusive Prosperity Commission, or IPC—a transatlantic group convened by the Center for American Progress and chaired by former U.S. Secretary of the Treasury and CAP Distinguished Senior Fellow Lawrence H. Summers and Shadow Chancellor of the Exchequer in the British Parliament Ed Balls—today released a robust report aimed at establishing sustainable and inclusive prosperity over the long term in developed economies, with a specific focus on raising wages, expanding job growth, and ensuring broadly shared economic growth. In July 2013, CAP announced the creation of the IPC—composed of high-level American and international policymakers, economists, business leaders, and labor representatives—charged with developing new and thoughtful solutions to spur middle-class growth. The report analyzes the global trends that are buffeting the middle class and those who want to get into it, as well as new ideas to address it.
“No industrial democracy will succeed unless its middle class enjoys sustained growth in living standards. This depends not only on strong economic growth but also on assuring that its benefits are widely shared,” said Lawrence H. Summers, IPC Co-Chair, former U.S. Secretary of the Treasury, Harvard professor, and CAP Distinguished Senior Fellow. “Middle-class Americans have not seen sustained growth in living standards for a long time now. The Inclusive Prosperity Commission points to the experience of other countries to highlight that this trend can be reversed and suggests a range of policies that offer the potential for economic success to be broadly shared among all Americans.”
“A new progressive policy agenda is needed to achieve inclusive prosperity. It won’t come by either turning our backs on the world economy or by hoping that traditional right-of-centre economics—laissez-faire, trickle-down, deregulation—are going to turn the tide of stagnating wages and rising inequality,” said Ed Balls, IPC Co-Chair and Shadow Chancellor of the Exchequer in the British Parliament. “We need a race to the top with policies to support more good jobs and higher wages, boost skills for everyone, support innovation, encourage long-termism in private and public sectors and so raise productivity.”
“Global trends are creating a toxic combination to suppress incomes and wages for middle-class families,” said Neera Tanden, President and CEO of the Center for American Progress and a Commissioner of the IPC. “Broadly shared prosperity is the key to economic growth, and it is the key challenge of our time. In today’s report, the Inclusive Prosperity Commission has put forth bold, new, and innovative ideas to spur quality job growth, combat wage stagnation, address increasing economic inequality, and strengthen the middle class.”
At a series of meetings that began in July 2013, the IPC analyzed new transnational trends, including globalization, technology, and declining worker power. These trends—all exacerbated by the financial crisis—have placed downward pressure on wages and incomes. To meet these challenges head on, the IPC’s report offers innovative policy ideas that will create more inclusive prosperity with good jobs, higher wages, and a sustainable economic future.
The IPC identifies five key policy areas that can deliver more inclusive prosperity on a global scale: rewarding and encouraging work; promoting educational opportunity for all; improved measures to support innovation and regional clusters; a move toward greater long-termism in the private sector; and international cooperation on global demand, trade, financial stability, and corporate tax avoidance. The report details policy proposals for the United States and the United Kingdom. In the United States, specific policies that could help meet these goals include:
Increasing workers’ share of the economic pie, raise wages and incomes
- Create tax incentives for companies to share profits with their workers in well-structured, broad-based profit-sharing programs and increase tax incentives for the formation of employee stock-ownership plans, or ESOPs.
- Modernize employment laws around overtime pay, workers’ compensation, unemployment compensation, and other protections to recognize the changing nature of work and to provide basic economic security to workers. This would include preventing the misclassification of employees as independent contractors and recognizing when corporations should share responsibility for protecting workers in their franchises and subsidiaries.
- Expand worker voice by making procedures governing collective bargaining fast and fair and remove the atmosphere of conflict that can surround representation elections and bargaining over initial contracts.
- Raise the minimum wage to a level that is at least high enough to prevent full-time workers from living in poverty, and index the minimum wage to the consumer price index in order to reduce the share of workers trapped in low-wage work.
Eliminating financial barriers to higher education
- Guarantee financial support for a college education at a public four-year college or community college so that every high school graduate and their family know that they can afford college. Tie repayments of support to incomes earned over, for example, a 20- to 25-year period. If former students are struggling economically, no payment would be required until their earnings are sufficient to make payments.
Utilizing national service programs to counteract cyclical unemployment of young workers
- Expand national service when long-term unemployment rises in order to help the young long-term unemployed develop skills and track records that make them appealing to employers, as well as help stabilize a weak economy.
Structuring tax policy to promote fairness and support aggregate demand
- Provide middle-class tax relief—until income stagnation is overcome—by crafting a tax credit that provides relief for Americans who do not benefit from the Earned Income Tax Credit, or EITC. Families could automatically receive the tax credit when the economy is weak, and it would phase out over a 2-year to 3-year period or when wage growth improves. The program could phase in where the EITC phases out—$23,260 for joint filers with children—and phase out completely at $95,000. Such a program would significantly boost demand because more than one-third of tax filers would benefit.
- Make the tax code more progressive and fairer over the long term by eliminating the decades-long accumulation of tax exemptions, deductions, and exclusions that have helped reduce effective tax rates on high-income households and corporations.
Promoting financial stability
- Stronger regulation of the shadow-banking system, including loss-absorbing capital buffers for money market funds.
- Reform procedures for dealing with misconduct in the financial sector, including severely curtailing settlements without admissions of guilt and making all bonuses subject to clawback in the event that malfeasance is subsequently discovered.
- Review existing liquidity and capital requirements for large banks, given the magnitude of bank losses relative to measured capital in 2008.
Increasing labor-force participation and growth
- Use family-friendly labor-market policies to increase female labor-force participation and income by enacting policies including paid parental leave, paid caregiving leave, paid sick days, paid vacation, protections for part-time workers, and workplace flexibility. Such policies would help Americans balance work and family better, resulting in more workers in the labor force, enhanced productivity, and stronger families.
Reforming corporate governance to encourage long-term investment
- Limit tax deductions of executive compensation, for instance, by only permitting compensation packages of $1 million to be deducted.
- Increase significantly the time between option vesting and exercise, and limit the amounts that can be exercised in a given period.
- Explore revisiting Securities and Exchange Commission regulations on corporate stock buybacks to find ways to discourage managerial opportunism while allowing useful repurchases.
Targeting public investment to create jobs and raise long-run economic potential
- Reform infrastructure funding by increasing the share of federal funds distributed through nationally competitive grant programs; rationalize formula programs so that money flows based on need; and institute rigorous performance management.
- Expand infrastructure investment by $100 billion annually over 10 years to bring our infrastructure to a competitive level and sustain demand.
Restoring residential investment to support a housing-led recovery
- The Federal Housing Finance Agency should change pricing rules so that Fannie Mae and Freddie Mac mortgages are equally affordable to all qualified buyers without sacrificing control of credit risk.
- Permit Fannie Mae and Freddie Mac to allow loan modifications with principal reductions, thereby keeping borrowers in their homes.
Further, in order to help meet the economic challenges experienced by the U.S. middle class, the IPC recommends supporting apprenticeship and other skills training, investing in national early childhood education, and using immigration policy to complement domestic labor-force growth. More details about these policies can be found in “Appendix 1: the U.S. Policy Response.”
In addition to co-chairs, Lawrence H. Summers and Ed Balls, members of the IPC include:
- E.J. Dionne, Jr., Senior Fellow, The Brookings Institution
- Chrystia Freeland, Canadian MP and Vice Chair, Committee on International Trade
- Jennifer M. Granholm, former Governor of Michigan
- Mary Kay Henry, President, Service Employees International Union
- Glenn Hutchins, Co-Founder, Silver Lake
- Lawrence Katz, Elisabeth Allison Professor of Economics, Harvard University
- Chris Keates, General Secretary, NASUWT – The Teachers’ Union
- Edward Montgomery, Dean, McCourt School of Public Policy at Georgetown University
- Pär Nuder, former Minister of Finance for Sweden
- Steven Rattner, Chairman, Willett Advisors LLC
- Judith Rodin, President, The Rockefeller Foundation
- David Sainsbury, former British Minister of Science and Innovation
- Wayne Swan, former Deputy Prime Minister and former Treasurer of Australia
- Neera Tanden, President and CEO of the Center for American Progress
- John Van Reenen, Director, Centre of Economic Performance, London School of Economics
Click here to read “The Report of the Inclusive Prosperity Commission.”
Experts from the Center for American Progress are available to discuss the IPC’s report. For more information or to arrange an interview, please contact Allison Preiss at gro.ssergorpnacirema@ssierpa or 202.478.6331.