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Performance bonds to fund programs for the poor? How about holding the wealthy similarly accountable?

Last week the Center of the American Experiment (CAE), a Minneapolis-based think tank, announced an upcoming event to examine an intriguing idea: financing social services for the poor with performance bonds. Nonprofit organizations and government agencies would get public money only on the condition that they produced results of quantifiable economic value.

If a preschool program led to higher test scores and greater likelihood that kids would become productive citizens, the program would continue to get money. If a housing agency provided homes for people who refused to work or pay their rent, the agency would be cut. It makes no sense, after all, to throw good money after bad.

CAE called this “a brilliant market-based idea,” and perhaps it is. But maybe the same accountability standards should govern the benefits doled out to people at the top.

What have the rich done for you lately?
Last Monday I wrote about the spectacular 30-year ascent of the very wealthy, who, even through the difficult last few years, have continued to widen the gap between themselves and those stuck on the middle and bottom rungs of the income ladder. I quoted extensively from a new book, “Winner Take All Politics: How Washington Made the Rich Richer — and Turned its Back on the Middle Class.” The authors, economists Jacob Hacker and Paul Pierson, acknowledge that the advancement of ordinary Americans has been stymied, at least partly, by the usual suspects: globalization, technology and a failed education system.

But those factors can’t explain the supercharged ascent of the wealthy. What does explain their continuing ascent is the takeover of the American political system by corporations and their allies. Beginning about 1980, those forces rigged the game so that tax benefits and lax regulation disproportionally benefit those at the very top while risks were shifted downward to ordinary citizens, burdening them with greater debt, rampant job insecurity and bigger holes in the social safety net.

Even in the current budget dilemma, the focus is on shared sacrifice except at the top — slashing spending on ordinary people (undoubtedly necessary) while lavishing tax and regulatory benefits on the wealthy in the blind hope that jobs will be created and that greater income equality will trickle down.

Laffer Curve or learning curve?
But, considering the stubborn inequality trend since 1980, why throw good money after bad? Since the dawn of Reaganomics, the political system has provided the already wealthy with enormous advantages. But that strategy has been a dismal failure for everyone else. Where is the quantifiable economic value? And — now especially — where are the jobs? Everyone loves a good investment as long as there’s a good return. But have the rich been a good investment?

If performance bonds are a “brilliant market-based idea” for the poor, then why not consider a similar accountability standard for the very wealthy? Their corporations would get tax breaks and lax regulation on the condition that they produce results of quantifiable economic value for the wider society. If they create private-sector jobs that allow ordinary Americans to move up the income ladder, then they get a reward. If they don’t, they’ll have to pay higher taxes.

Steve Rothschild, the former General Mills executive who founded Twin Cities Rise!, a celebrated job-training nonprofit aimed at breaking the poverty cycle, has worked out the details on how pay-for-performance bonds [PDF] would work to finance and sustain successful social programs while reducing government expenses. I’m sure it would be far more complex to devise incentives for the very wealthy to leverage their advantages in ways that create income gains for the broader society. But, hey, it’s worth a try. We have corporations that are said to be sitting on $3 trillion in unproductive cash. And we 30 years of bad policy to make up for.

How about doubling the charitable deduction?
Elizabeth Sawhill of the Brookings Institution has a more palatable idea for shaking money loose from the wealthy: a temporary doubling of the deduction for charitable giving.

With the poor facing terrible times in the months ahead, some way must be found for getting money into the pipeline, she says.

“We need to get them [the wealthy] to spend that money instead of socking it away, and we need to get them to spend it on socially beneficial things,” she told the Huffington Post. “This is simply a device to pry that money out of them.”

Overheard at a breakfast restaurant
First senior citizen: You gonna get the senior special?

Second senior citizen: Yeah, I guess. But don’t you wonder why they give us a cheaper breakfast? We’re doing better than everybody else. We’re on fixed incomes.

Comments (8)

  1. Submitted by Ray Schoch on 02/21/2011 - 10:15 am.

    Bravo, Mr. Berg!! That’s a GREAT idea. Frequently, a comment from the right shows up on MinnPost about the wealthy and corporations being deserving of tax breaks “because they create jobs.” Not only does the comment ignore fiscal reality – the people who HAVE money are the ones who ought to be doing their fair share to support the society that gives them the money – there’s no proof that tax breaks do, in fact, “create jobs.” Just because it’s an article of faith among right wingers doesn’t make it so. It’d be VERY interesting if big corporations and the wealthy who run them had to prove that the blessings bestowed upon them by a benevolent society were producing equivalent social benefit.

  2. Submitted by Di Galvin on 02/21/2011 - 10:49 am.

    I agree, if it is truly a good idea it should work both ways. I am with you on the point that social servicres might not be the best test for this idea. Maybe the idea can be tried out on a govt. agency that is alrady trying to achieve measurable goals. For instance the FDA — if it finds and pulls a dangerous drug before someone gets hurt then it gets more $$ to go look for more dangers….oops you can’t measure what doesn’t happpen. OK how about Ag. Dept. — if is gives money to farmers to pull land out of production to prevent erosion and that program really does prevent erosion sufficiently to clean up X river than ….oops less productive land means less production means higher prices.

    See where this is going? Money as the carrot will just as likely reward the wrong behavior or other behaviors not intended. Then there’s the perennial problem of cheating or gaming the system. Not to mention raising the hackles of those who aren’t getting the money. And the eternal question of where’s the money coming from? Oh you’re “taking” it from someone who feels entitled to it (and thus will scream bloody murder) and giving it to someone who fits your narrow definition of “earning” it.

    Back to the drawing board

  3. Submitted by Bernice Vetsch on 02/21/2011 - 12:32 pm.

    This morning on a telecast of the House’s Ways and Means Committee, one gentleman with a nice suit and a great haircut noted that his community didn’t get any LGA from the state because they were more “productive” and, no doubt, harder working, than those who “refuse to work or pay their rent.”

    Clueless as to what life is really like for the poor? Indeed. How to education him? Hard to say.

  4. Anonymous Submitted by Anonymous on 02/21/2011 - 01:24 pm.

    How many things are wrong with this post? First – all things cannot be represented by numbers. How to judge if a food shelf is working? If a free clinic is working?

    Second, does everything have to boil down to “quantifiable economic value” ?? What is the QEV of a sonata, an act of kindness, or of charity? Money isn’t everything, but the market fundamentalists at the CAE would like us have to believe it is. This is hilarious coming from the people who claim to be such moral traditionalists. What they, and this post, really worship in money.

  5. Submitted by Arvonne Fraser on 02/21/2011 - 02:36 pm.

    Great job, Steve Berg! It’s time the wealthy paid their fair share of taxes so how about performance bonds for the wealthy that they would be required to buy in an amoung equal to every percent their income tax rate was less than the average for the state. Such they would be performance bonds would fund Minnesots’s public schools and local government assistance. Also, how about taxing or ticketing every car with a license plate of a state south of Arkansas that is parked more than two weeks each summer in Minnesota? Alternatively, Minnesota could require every car with such a license plate entering the state between April 1 and May 31 to pull into the first truck weighing station they encountered along highway and pay a significant partially-refundable-on-leaving snowbird toll. No refunds allowed in September and October.

    As to Isabel Sawhill’s suggestion of doubling charitable deductions for the wealthy, I would suggest only deductions to cities, the state, and the scholarship funds at colleges and universities in the state be allowed.

    Even better, just adopt Dayton’s tax proposals.

  6. Submitted by Rod Loper on 02/21/2011 - 04:13 pm.

    I got a post circulated by my conservative brother
    with pictures of a shiny airport hangar and field in Austria loaded with dozens of glitzy classic aircraft (including airliners and a P-38 in top
    condition, owned by the founder of Red Bull. There is a world class restaurant to match for the owner
    and guests. I asked my brother how these signs of
    plucky entrepenureship could flourish under the heavy hand of European socialism. He had no answer. Maybe the CAE people should make a visit.
    The flight could be tax-deductible I am sure.

  7. Submitted by Paul Udstrand on 02/21/2011 - 04:45 pm.

    This idea has been banging around since the late 80s, and it’s never gotten off the ground for good reasons. While I applaud the effect of the using the performance bond model to illustrate income discrepancies and find it entertaining, there is a much simpler solution. We can just CAN just tax the wealthy. We’ve done it before, it’s produced an impressive and much more equitable society.

  8. Submitted by Victoria Wilson on 02/21/2011 - 07:27 pm.

    I take issue with several aspects of the Human Capital Performance Bond program, but in order to avoid being windy will only reference one; paying an investor a return on the bond would in effect be a double payment and is not reflective of the market. As the analysis shows the bond money would be dispersed only after the non-profit realized a positive benefit to the state tax coffers. So the investor not only receives a return on their liquid asset, but also a reduction in state tax (if non-mn resident, a reduction in federal tax for the same reasons). In actuality, resources are provided to the collective economy at a discount. Wages in the non-profit sector are less than in other industries. Individuals appear willing to accept less for their labor as (I have always assumed) they are contributing to the greater good.

    Steve makes a valid point that a community should have a grasp of how much philanthropic activity is supporting the fine arts, academia and those in need. It would also be useful to see a distribution of the time and resources given by the spectrum of citizens.

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