LIES ABOUT THE 2017 TAX CUT ARE NOW CLEAR

The effects of the December 2017 tax cut bill, the Tax Cuts and Jobs Act (TCJA), rammed through by Republicans in Congress and President Trump, are now quite clear. I’ll provide a summary of what it did, note the promises that were made about its effects, and then review its actual effects.

The 2017 Tax Cuts and Jobs Act, among other things:

  • Permanently cut the corporate tax rate from 35% to 21% (the lowest level since 1939)
  • Repealed the 20% corporate alternative minimum tax (which had required profitable corporations to pay at least some taxes on their profits)
  • Allowed up to $63,000 of pass-through business profits to go untaxed to help small businesses (supposedly). (These are profits from businesses that are not taxed because they are passed through to and taxed on an individual’s tax return.)
  • Provided significant tax benefits to corporations for investments in facilities and equipment, as well as for borrowing money
  • Adjusted the taxation of multinational corporations to more fairly tax their profits, for example, by increasing taxes on profits shifted to overseas entities and by incentivizing corporations to repatriate trillions of dollars of profits previously stashed overseas
  • Doubled the size of an estate that is exempt from taxation from $5 million to $10 million per person
  • Repealed the requirement of the Affordable Care Act (aka Obama Care) that individuals have health insurance or pay a tax to support the health care system
  • Made changes in the personal income tax system that are generally neutral for most taxpayers, although several of the tax reduction provisions are scheduled to expire in 2025

The supporters of the TCJA, including Members of Congress, the President, corporate executives, and wealthy shareholders all promised that it would:

  • Provide a sizable tax cut for workers and middle-income people, while increasing taxes on high-income people
  • Increase wages and workers’ incomes by $4,000 a year
  • Increase business investment, and hence worker productivity, the number of jobs, and economic growth in the U.S.
  • Limit the increase in the federal government’s deficit to $150 billion a year
  • Discourage the shifting of corporate profits and jobs overseas through new taxes, while also increasing tax revenue by giving corporations an incentive to bring up to $4 trillion of profits stashed overseas back to the U.S. by reducing the taxes they would have to pay on those profits. (More on this topic in my next post.)

The actual effects of the TCJA have been: [1]

  • No discernable wage increase due to the TCJA. In fact, wage growth appears to have slowed in 2019.
  • Clear failure to increase business investment; no increase in 2018 and a significant decline in the first 9 months of 2019. When the TCJA was enacted in 2017, year-over-year investment growth was at 5.4%. However, it has been dropping sharply and was only 1.3% in the third quarter of 2019 (the latest data available). [2]
  • Larger than projected decline in federal corporate tax revenue, which was expected to be $96 billion a year (roughly a 26% tax cut). As a result, the deficit is increasing by about $30 billion a year more than the $150 billion a year that was promised. The deficit is projected to increase to over $1 trillion a year in 2020.

    The latest information suggests that the decline in revenue and the increase in the deficit may be even larger. (More on this in my next post.) The Congressional Budget Office now estimates that the deficit (including interest payments) will be an average of $230 billion a year higher over the next 10 years due to the TCJA and $310 billion a year higher in 2028.

    The federal government’s revenue from corporate taxes had already been declining as a portion of total federal tax revenue, largely due to corporate tax evasion and avoidance. The trend of declining tax revenue from corporations has been accelerated by the TCJA, which cut corporate taxes by about 26% or $96 billion a year. The corporate tax cut has primarily benefited corporate shareholders, at least in the short run; the 10% wealthiest households own roughly 80% of corporate shares and, therefore, these already wealthy households are the primary beneficiaries of the corporate tax cuts. [3]

  • Business profit pass-through tax exemption, supposedly targeted at small businesses, has largely benefited millionaires, which isn’t what most people think of when they think of a small businessperson. This shouldn’t have been a surprise to anyone, as 49% of pass-through income appears on the tax returns of the richest 1% of taxpayers.
  • Increase in income and wealth inequality along both class and racial lines. Rich corporate executives and wealthy shareholders have been enriched at the expense of workers. White households are 67% of taxpayers but are estimated to receive 80% of the TCJA’s benefits, and most of this will go to the 5% of households with the highest incomes, i.e., over $243,000 a year. The average tax cut for a Black household has been $840, but $2,020 for a White household. For families with incomes under $25,000, the average tax cut has been about $40.

    In 2018, the 5% of individuals with the highest incomes received nearly 50% of the TCJA’s benefits. After the individual tax cuts expire in 2025, the 1% of households with the highest incomes will receive 83% of the benefits of the TCJA.

  • A bigger tax cut for foreign investors than for low- and middle-income households in the U.S. Foreign investors, as a group, will receive an estimated $38 billion tax cut from the TCJA in 2020, while the 20% poorest households in the U.S., as a group, will receive an estimated $2 billion.

The bottom line is that the Tax Cuts and Jobs Act of 2017 has delivered none of the promised benefits to workers and low- and middle-income households, but has delivered much greater benefits than were promised (or admitted to) to large, particularly multi-national, corporations and to wealthy individuals. Economic benefits for workers and low- and middle-income households have not materialized and there is no reason to expect them to. Business investment and economic growth have not increased as promised. The promise of more fairly taxing multi-national corporations’ profits to increase tax revenue and discourage the shifting of profits and jobs overseas have not lived up to the promises made, and the most recent findings indicate that this failure has been more dramatic than was initially realized. (More on this topic in my next post.)

The loss of revenue for the federal government is significantly larger than was projected and, therefore, the increase in the federal budget deficit is much greater than what was promised.

[1]      Corser, M., Bivens, J., & Blair, H., Dec. 2019, “Still terrible at two: The Trump tax act delivered big benefits to the rich and corporations but nearly none to working families,” The Center for Popular Democracy and the Economic Policy Institute (https://www.epi.org/files/uploads/20191211_Trump-Tax-Bill-R6.pdf)

[2]      Blair, H., 12/17/19, “On its second anniversary, the TCJA has cut taxes for corporations, but nothing has trickled down,” Economic Policy Institute (https://www.epi.org/blog/on-its-second-anniversary-the-tcja-has-cut-taxes-for-corporations-but-nothing-has-trickled-down/)

[3]      Corser, M., Bivens, J., & Blair, H., Dec. 2019, see above

THE WEALTHY PAY A LOWER TAX RATE THAN YOU DO

It’s now official: the 400 wealthiest Americans pay taxes at a lower rate than everyone else, thanks to tax cuts, loopholes, and lax enforcement. For the first time in history, wealthy Americans’ federal, state, and local taxes are a lower percentage of their incomes, 23%, than anyone else.

The portion of income paid in taxes by the wealthy has plummeted over the last 70 years, contributing substantially to growing income and wealth inequality. In the 1950s, wealthy Americans paid 70% of their incomes in taxes. This dropped to 47% in 1980 and then was cut in half, to 23%, by 2018. Meanwhile, middle-income households’ tax burden increased, rising from 20% to 30% and then falling back to about 25%. Low-income households experienced the largest proportional increase in their tax burden, which rose from under 20% to roughly 25%.

This animated graph dramatically illustrates how the effective tax rates experienced by all households, from the lowest income households on the left to the 400 wealthiest households on the right, have shifted from 1950 to 2018 for the aggregated total of federal, state, and local taxes. [1]

Not only have tax rates on the wealthy been cut and loopholes added, but tax enforcement has been weakened. Driven by Republicans in Congress, the enforcement budget of the Internal Revenue Service (IRS) has been cut by 25% (adjusted for inflation) since 2010.

Since 2010, the auditing of high-income taxpayers has declined sharply, although the audit rate for taxpayers with under $100,000 of income has remained roughly the same. In 2015, 34.7% of taxpayers with over $10 million of income were audited; in 2018, 6.7% were audited – an 80% decline. For taxpayers with between $1 million and $5 million in income, audit rates fell from 8.4% to 2.2% – a 74% decline. This reduction in audits is happening at the same time as tax avoidance schemes used by the rich, such as using overseas accounts and business entities, are proliferating. Partnerships, which are typically used by high-income individuals such as lawyers and investment managers, had an audit rate in 2017 of only 0.2%, half of what it was in 2015. [2]

Audits of low-income households that are poor enough to claim the earned income tax credit [3] account for 39% of all IRS audits. The IRS claims this is because auditing the poor is quick and easy; it can often be done by mail and by lower level employees. The IRS says this is the most efficient use of limited enforcement resources and that it can’t increase audits of higher-income taxpayers until it has the money to hire more skilled employees and have them devote the time required to do more complex audits. [4] However, audits of low-income tax returns can only yield small amounts of additional taxes when mistakes or problems are uncovered. Audits of high-income returns, on the other hand, can yield millions of dollars of additional taxes and may reveal illegal tax avoidance that has been going on for years.

The share of income paid in taxes by the wealthy has declined because politicians have cut every tax that falls more heavily on those who are well-off: income tax rates on high incomes have been cut by more than half, taxes on income from investments (i.e., wealth) have been cut, and the estate tax has been dramatically cut. The justification for this has been the supply side plutocratic economics theory that the economy as a whole, and even tax revenue, would benefit. This has been proven wrong. The wealthy – and only the wealthy – have benefited. Incomes for workers and the middle class have been stagnant since 1980 and the growth of the economy has been disappointingly slow. The American economy hasn’t done well when inequality is extremely high and rising, and tax rates on the rich are low and falling. [5]

Raising income tax rates on very high incomes, implementing a small, annual wealth tax, and increasing taxes on large estates would increase the fairness of our taxes and begin to slow or reverse growing income and wealth inequality. Moreover, this would provide the public sector with the revenue needed to make critical public investments that will actually spur economic growth.

I encourage you to contact your elected officials and candidates for office to tell them you are outraged that the wealthy pay taxes at a lower rate than you do. Tell them that it’s crystal clear that income and wealth inequality are the result of policy choices made by elected policy makers. Ask them what they will do to reduce income and wealth inequality, and to make the American tax system fair again.

[1]      Leonhardt, D., 10/6/19, “The rich really do pay lower taxes than you,” New York Times

[2]      Fleischer, V., 9/26/19, “Create a more progressive tax policy,” The American Prospect (https://prospect.org/day-one-agenda/create-a-more-progressive-tax-policy/)

[3]      The earned income tax credit provides its greatest benefit of $6,400 to families with three or more children and incomes under $19,000. The benefit is then phased out at higher incomes and goes to zero at an income of $49,000 for a family with 3 or more children and at lower levels for smaller families.

[4]      Kiel, P., 10/2/19, “IRS: Sorry, but it’s just easier and cheaper to audit the poor,” Pro Publica (https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor)

[5]      Leonhardt, D., 10/6/19, see above

PROGRESSIVE POLICIES TO REVERSE PLUTOCRATIC ECONOMICS AND ITS FAILURES

Forty years of plutocratic economics has produced a high level of economic inequality and numerous business sectors dominated by a monopoly or near monopolies. This has undermined democracy in our economy and in our political institutions.

A high level of economic inequality is bad for the economy. The Organisation for Economic Cooperation and Development (OECD), an international organization of 36 economically developed countries, estimates the U.S. lost almost 5% in economic growth over the period from 2000 to 2015 ($1 trillion a year in a $20 trillion economy) due to its high level of inequality. Part of this loss is due to limited access to education for people with lower incomes, which wastes human capital and reduces the productivity of the workforce. [1] In addition, our high level of inequality has undermined the consumer spending that is close to 70% of our economy because workers and the middle class simply have less money to spend.

There are multiple policy changes that are needed to reverse the failed plutocratic economic policies (see more information in previous posts here and here) that have been put in place over the last four decades and their effects. Some of them directly address the high levels of economic inequality in incomes and wealth that have been created. Others address the underlying issues that have allowed the plutocrats to amass wealth and power. Both are needed to reinvigorate our democracy and its commitment to equal opportunity, fairness, and the ability of all to pursue life, liberty, and happiness.

Policy changes that would directly address the dramatically increased and increasing economic inequality include: [2]

  • Increasing incomes of workers and the middle class by raising the minimum wage and strengthening unionization
  • Increasing spending on public education and making it equitable so all students are prepared to be productive members of society and the workforce
  • Raising taxes, partly by eliminating loopholes, on wealthy individuals and businesses
  • Raising the estate tax (which was meant to prevent wealth from accumulating and being passed down from generation to generation thereby creating a plutocracy [3])
  • Requiring the payment of a tax on the gain in value of appreciated property when it is passed on to heirs
  • Implementing a wealth tax

Policy changes that would address underlying issues that have enriched and empowered plutocrats include: [4] [5] [6]

  • Building progressive, grassroots, inclusive, and broad-based participation in our democratic policy making and elections, including through reforming campaign financing
  • Strengthening business and financial industry regulation, including strong anti-trust enforcement that limits the size and power, both economically and politically, of businesses (my next post will provide more detail on this important policy)
  • Reforming trade policies to protect workers and the environment and reduce the power of multi-national corporations over nations’ sovereignty
  • Updating labor laws for the gig economy, including clarifying standards for who is deemed an employee vs. an individual contractor
  • Strengthening regulation of public utilities from electric power to phones to airlines and of services that are essential to everyday life such as the Internet and financial services (which is what the Consumer Financial Protection Bureau was created to do but has been undermined in carrying out)
  • Stopping privatization of assets and functions best managed by democratic public entities, such as roads, bridges, basic education, prisons, health insurance, and public assistance programs
  • Building a robust system of public banking and mortgage finance perhaps through the U.S. Postal Service (which used to provide basic banking services)
  • Creating publicly owned, mixed-income, highly desirable social housing (as is widely done in Europe especially Austria) as opposed to the poorly performing privatized or public-private partnership subsidized housing we now have
  • Regulating the flow of capital and valuation of currency to reduce financial manipulation, speculation, and tax avoidance
  • Adding employees to corporate boards of directors

These are some of the key policy changes needed to reverse plutocratic economics and support workers and the middle class. I urge you to listen to and ask candidates running for public office which of these policies they support.

[1]      Ingraham, C., 7/25/19, “The richest 1 percent now owns more of the country’s wealth than at any time in the past 50 years,” The Washington Post

[2]      Reich, R., 7/9/19, “The four biggest conservative lies about inequality,” The American Prospect (https://prospect.org/article/four-biggest-conservative-lies-about-inequality)

[3]      Collins, C., & Hoxie, J., October 2018, “Billionaire Bonanza 2018: Inherited Wealth Dynasties of the United States,” Institute for Policy Studies (https://inequality.org/wp-content/uploads/2018/11/Billionaire-Bonanza-2018-Report-October-2018.pdf)

[4]      Sabeel Rahman, K., Summer 2019, “The moral vision after neoliberalism,” Democracy Journal (https://democracyjournal.org/magazine/53/the-moral-vision-after-neoliberalism/)

[5]      Kuttner, R., 6/25/19, “Neoliberalism: Political success, economic failure,” The American Prospect (https://prospect.org/article/neoliberalism-political-success-economic-failure)

[6]      Warren, E., 6/4/19, “A plan for economic patriotism,” Office of Senator Elizabeth Warren (https://medium.com/@teamwarren/a-plan-for-economic-patriotism-13b879f4cfc7)

PLUTOCRATIC ECONOMICS HAS FAILED WORKERS

Forty years of right-wing, plutocratic economics (see this previous post for background) has produced stagnant worker compensation, decimating the middle class and leaving growing numbers of low-wage workers struggling to survive. The plutocratic economics of wealthy, elite members of society has intentionally and dramatically weakened public policies that provide support for workers and an economic safety net (including the minimum wage, unemployment benefits, and the right to join a union).

After adjusting for inflation, workers’ compensation has barely increased since 1980, in large part because:

  • The minimum wage’s value has been eroded by inflation and
  • Workers’ negotiating power with their employers has been decimated by concerted attacks on unionization and by the growing size and economic power of employers.

Currently, we are in the longest period since the establishment of the minimum wage, 12 years, without an increase in it. The $7.25 per hour federal minimum wage (about $15,000 per year for a full-time worker) has lost 17% of its purchasing power (or more than $3,000) over those 12 years. Since its peak value in February 1968 at about $22,000 per year for full-time work (adjusted for inflation), the federal minimum wage has lost 31%, or almost one-third, of its purchasing power ($6,800). [1]

As a result, minimum wage workers at Wal Mart, fast food outlets, and elsewhere do not earn enough to survive without public benefits such as food stamps, housing subsidies, subsidized health insurance, and the Earned Income Tax Credit. These public benefits for workers mean that the government and we as taxpayers are subsidizing large, very profitable companies when they pay their workers too little to live on. This is one example of government welfare for companies.

The proponents of plutocratic economics claim that raising the minimum wage will reduce the number of jobs and, therefore, hurt workers, but this ignores the obvious benefits for workers. A high estimate is that 1.3 million jobs might be lost – half of them for teenagers and many of those for adults being part-time jobs. On the other hand, wages would increase for over 27 million workers (roughly one out of every six workers). With an increase to $15 per hour (up from the current $7.25), workers would receive an overall increase in income of $44 billion. This would lift 1.3 million Americans out of poverty and significantly increase consumer spending in local economies. On the downside, companies would raise prices by an estimated 0.3% and business owners would lose $14 billion of profits (a small amount [0.07%] in a $21 trillion economy).

A study of the actual experiences in states and cities that have recently raised their minimum wages found no reductions in the number of jobs or hours at work. It did find that workers’ incomes increased and that poverty declined. [2]

Unionization is important because it allows workers to band together and increase their negotiating power when bargaining with employers for pay and benefits. The rate of unionization in the United States today is 10.5% overall (down from over 25% in the 1950s) and only 6.4% of private-sector workers are unionized. In the early 1950s, unions included over 40% of workers in manufacturing, over 60% in mining, and over 80% in the construction, transportation, communications, and utilities sectors. The attacks on unions have been very successful, to say the least, in reducing unionization and workers’ negotiating strength. By way of comparison, the rates of unionization in Scandinavia range from 81% in Iceland to 71% in Sweden to 52% in Norway. Under pressure from global trade, these rates have come down in recent years; for most of the postwar period the rate in Sweden was in the mid-80s, for example.

The disparity in unionization rates between the U.S. and the Scandinavian countries has produced a dramatic difference in economic inequality. The best measure of economic inequality is a nation’s Gini Coefficient, where a higher number indicates greater economic inequality. The scale is from zero to one with zero indicating complete economic equality (everyone has the same income) and one indicating that all of a nation’s income goes to just one person. In Denmark and Sweden, the Gini Coefficient is 0.25; in Finland and Norway, it’s 0.27; and in Iceland, it’s 0.28. However, in the United States, it’s 0.47. [3]

Employers’ power over workers has grown, not only due to reduced unionization, but also due to the growing economic power in the marketplace of fewer, larger employers. Overall, workers’ compensation has grown less than their increases in productivity since 1979 (productivity has grown 69.3% while compensation has grown only 11.6%). Previously, compensation tracked productivity growth quite closely (from 1948 to 1979 productivity grew 108.1% while compensation grew 93.2%). [4] In other words, workers are not receiving increases in pay despite increases in the value of their output per hour of work.

Instead of paying workers more for their increased output, companies have increased profits and, therefore, returns to shareholders, owners, and executives –  in other words, they have increased income and wealth for plutocrats. As a result, income and wealth inequality have increased dramatically. Just three white men ‒ Jeff Bezos of Amazon, investor Warren Buffett, and Microsoft’s Bill Gates ‒ now own more wealth (a combined total of $248 billion) than the least wealthy half of all Americans (160 million people with combined wealth of $245 billion). The wealthiest 1% of Americans own 40% of all wealth. This is the highest level in at least 50 years and is higher than in any other country with an advanced economy. (Germany is closest with 25% of wealth in the hands of the top 1%). The 400 wealthiest Americans own an astonishing $2.9 trillion. [5]

Government policies set the rules for our economic markets and balance the power and interests of various parties. For 40 years, plutocratic economic policies have put returns to owners (i.e., wealthy investors including executives) ahead of the interests of workers. The result of these policies has been a dramatic growth in income and wealth inequality; the U.S. has the most unequal income distribution of any well-off democracy. [6] Economic security and the standard of living for many in the middle class has fallen dramatically, while many low-income workers are struggling just to make ends meet.

Future posts will review the politics of plutocratic economics and how it has damaged our democracy. They will also identify progressive policies that are needed to reverse its harmful effects.

[1]      Economic Policy Institute, 7/15/19, “Minimum wage,” (https://www.epi.org/research/minimum-wage/)

[2]      Dayen, D., 7/9/19, “Conservatives grasp at straws after CBO minimum wage analysis shows clear benefits,” The American Prospect (https://prospect.org/article/conservatives-grasp-straws-after-cbo-minimum-wage-analysis-shows-clear-benefits)

[3]      Meyerson, H. 7/2/19, “How centrists misread Scandinavia when attacking Bernie and Elizabeth,” The American Prospect Today (https://prospect.org/article/how-centrists-misread-scandinavia-when-attacking-bernie-and-elizabeth)

[4]      Economic Policy Institute, 8/27/19, “How well is the American economy working for working people?” (https://www.epi.org/files/pdf/174081.pdf)

[5]      Anapol, A., 12/6/17, “Study: Wealthiest 1 percent owns 40 percent of country’s wealth,” The Hill (https://thehill.com/news-by-subject/finance-economy/363536-study-wealthiest-1-percent-own-40-percent-of-countrys-wealth)

[6]      Tyler, G., 1/10/19, “The codetermination difference,” The American Prospect (https://prospect.org/article/codetermination-difference)

PROGRESSIVE POLICIES #1: UNIVERSAL CHILD CARE AND EARLY LEARNING

Access to affordable, high quality early care and education (ECE) for children under school age is essential for allowing parents to be productive members of the workforce and for putting young children, especially those from families facing economic or other challenges, on a trajectory for success. Therefore, providing universal ECE is an important progressive policy priority.

For 65% of children under age six, all parents are working. The lack of affordable ECE means that some parents can’t afford to work, reducing the labor force participation of parents – a loss to our economy. In addition, reduced productivity due to employees’ inadequate or undependable ECE costs businesses billions of dollars a year because of absenteeism and other impacts on parents’ ability to work productively.

Low-income families spend, on average, over 17% of their incomes for ECE. The federal government’s benchmark for affordability is that ECE should cost no more than 7% of income. With two or more children, ECE often costs more than a parent can earn. Therefore, it can make economic sense for a parent to drop out of the workforce and care for the children.

Because providers of ECE must make their services affordable for parents, in many cases they cannot afford to provide high quality services. In particular, they cannot afford to pay ECE teachers enough to consistently attract and retain top notch staff. ECE teachers are paid much less than what they would make in other positions, for example as a public school teacher. Despite the push to have ECE teachers have a Bachelor’s degree, as public-school teachers do, their pay is about half that of public school teachers.

ECE teachers make less than $24,000 on average; pay so low that roughly half of them require public assistance, such as Food Stamps, to make ends meet. Therefore, turnover is high – which does not provide the stability of consistent relationships that children need or the quality of services that an experienced, stable workforce can deliver.

Investments in young children and their families can produce a high return on investment (ROI) – up to $17 for every dollar spent – according to numerous studies. High quality ECE for children, coupled with support for low-income parents, reduces the need for special education and grade retention in schools, reduces high school dropout rates and involvement with the criminal justice system, and increases children’s educational attainment and their future earnings. More recent studies have identified long-term improvements in health and mental health, as well as benefits for the next generation of children. These more recently identified outcomes have not yet been factored into the ROI calculations; they will undoubtedly increase the ROI for investments in young children and their families, probably substantially above the 17 to 1 return calculated by the Perry Preschool Study.

Current federal ECE programs serve only a fraction of eligible children because funding is limited. Head Start serves fewer than 50% of eligible 3 and 4 year olds (i.e., those in families below the poverty line, which is only $21,000 for a family of three that not infrequently consists of a single parent with two young children). Early Head Start, for families with a child from birth to three, serves fewer than 10% of those eligible. Finally, the Child Care and Development Fund, which subsidizes ECE for all other families, serves only about 16% of the eligible families (1 in 6).

Senator (and presidential candidate) Elizabeth Warren has made a detailed policy proposal for universally accessible ECE. Her Universal Child Care and Early Learning plan would:

  • Provide universal access to locally run ECE in centers, homes, or other settings so every family can choose the ECE it would prefer and every child has the opportunity to reach his or her full potential.
  • Ensure affordability by providing ECE free to families below twice the poverty line (about $51,500 for a family of 4) and on a sliding fee basis to other families so no family pays more than 7% of its income for ECE.
  • Guarantee high quality services, including comprehensive support for children’s growth and development, such as health, dental, and other services to ensure a safe, nurturing early childhood experience.
  • Compensate ECE teachers at the same level as public school teachers and provide them with professional development opportunities, which will improve quality and reduce turnover.

An independent economic analysis estimates that such a program of universal, affordable, high quality ECE would cost about $70 billion per year. Senator Warren proposes paying for this with a wealth tax that would generate $275 billion per year. (See my previous post for more details and options on how to pay for progressive policies like this one.)

Universal, affordable ECE would increase labor force participation and productivity, thereby stimulating economic growth and increasing tax revenue. Therefore, universal ECE would, at least in part, pay for itself in the short-term, and over the long-term the return on investment due to improved outcomes for the children would more than pay for this investment in our young children and their families.

EVEN THE RICH RECOMMEND TAXING THE RICH

There are many arguments for increasing taxes on the rich. It’s interesting and noteworthy when the rich themselves argue for higher taxes on themselves and others like them. Warren Buffet, one of the richest men on the planet and an investor without peers, has been stating since 2011 that he pays a lower income tax rate than his secretary and that this isn’t fair. [1]

Other wealthy individuals also argue that the rich should pay more. First, there’s Douglas Durst, a billionaire New York City real estate magnate, who recently stated that he supports “higher taxes on people like me.” He noted that the US “has more of a revenue problem than a spending problem.” His father, also a real estate man, created the National Debt Clock (that displays the federal government’s overall debt) and put it on a building he owned near Times Square in New York in 1989. Durst, the son, maintains it today as the US government’s debt is growing by almost $1 trillion per year. Republicans, who campaigned on balancing the budget, have increased the annual deficit to this level (and even higher in the future) by cutting taxes and increasing spending. The US hasn’t had this high a debt level in comparison to the size of the overall economy (i.e., Gross Domestic Product [GDP]) since World War II.

Durst is baffled that President Trump and the Republicans in Congress would give a tax cut to wealthy people like him. “We’re mortgaging our children’s future. … The tax cut was an overall step in the wrong direction. Nobody who has any background in economics thought the tax bill was a good idea.” [2]

Over the last 40 years, President Clinton is the only President who has balanced the federal budget and reduced the overall debt.

Second, there’s Nick Hanauer, a billionaire, venture capitalist, and serial entrepreneur, who recorded a 6-minute TED Talk in 2012 and this summer wrote an article in The American Prospect magazine, both of which argue that taxes on the rich should be increased. [3] He argues that “taxing the rich is the only plan that would increase investment, boost productivity, grow the economy, and create more and better jobs.” He states (correctly) that there is no observable evidence or plausible economic mechanism to support the claim that cutting taxes for the rich will spur economic growth. This did not happen when President Reagan cut taxes on the rich; it did not happen when President G. W. Bush did it. However, when President Clinton raised taxes on the rich, the economy boomed and the federal government balanced the budget. President Trump and the Republicans cut taxes on the rich in December 2017 and the economy has not boomed; it has continued its slow growth that began under President Obama. Furthermore, well over 90% of the benefits of current economic growth are going to the wealthy.

In Kansas in 2012, Governor Brownback and Republicans in the state legislature dramatically cut taxes on the rich, promising unprecedented economic growth. The reality has been that Kansas’s economy has under-performed neighboring states and the country. Because of the loss of state revenue, spending on schools (and everything else) has been cut dramatically and the state’s courts stepped in and ordered the state to spend more on K-12 education. The legislators have now overridden a gubernatorial veto and reversed some of the tax cuts.

Many (if not all) credible studies of the interaction between tax rates for the wealthy and economic outcomes show either that 1) increasing taxes on the rich increases economic growth and other indicators of economic success and well-being or 2) there is no link between top tax rates and the economic benefits the proponents of tax cuts and trickle-down economics claim.

In the 1950s, the top tax rate was 91% – and the economy was booming. It was 70% in 1980 when President Reagan took office and he cut it to 50%. The 2017 tax cut cut the top rate to 37%! As Hanauer states in his TED Talk, if cutting tax rates on the rich led to economic growth and job creation, our economy would be exploding and everyone would have great jobs given that today’s top rate is only 37%.

Finally, Hanauer notes (accurately) that consumer spending is what drive the US economy; it accounts for 70% of GDP. Current levels of inequality mean that rich people (and corporations) literally have more money than they know what to do with. With income and wealthy that is over 1,000 times that of the average American, they can’t buy 1,000 houses, or 1,000 times as many cars, clothes, and food items.

Therefore, putting more money in the hands of the middle class, workers, and low-income people will boost the economy because they will spend it in the local economy. They will also invest some of the money in human capital development, i.e., education and training, for themselves and their children. These investments in human capital are key to spurring future growth and success for our economy.

Hanauer states that anything governments spend money on will pump more money into our economy that what the rich do with their excessive amounts of money. Low wages and high levels of inequality cause slow growth. Therefore, increasing inequality by cutting taxes on the rich will not spur economic growth. A 2014 report from the Organisation for Economic Cooperation and Development (OECD) concluded that growing economic inequality in the US had reduced its economic growth by 9% over the previous 20 years.

In conclusion, we need to reduce economic inequality in the US as a matter of fairness and to live up to our ideals of equal opportunity and that all people are created equal. We also need to reduce inequality to spur economic growth today and in the future.

To reduce economic inequality, we need to increase taxes on the rich and invest the revenue in good jobs (e.g., rebuilding our infrastructure), in human capital (e.g., education and training from birth and throughout careers), and in a safety net (e.g., unemployment insurance and guaranteed healthcare) to support people who fall on hard times.

These steps will allow the United States to live up to its ideals and principles of equal opportunity, will boost our economy, and will contribute to creating a fairer, more just society that supports all children and families.

[1]      Isidore, C., 3/4/13, “Buffet says he’s still paying lower tax rate than his secretary,” CNNMoney (https://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/index.html)

[2]      Long, H., 9/17/18, “‘I support higher taxes’: the billionaire behind the National Debt Clock has had it with Trump,” The Washington Post

[3]      Hanauer, N., Summer 2018, “Want to expand the economy? Tax the rich!” The American Prospect (http://prospect.org/article/want-expand-economy-tax-rich)

A BETTER DEAL: A WIDE-RANGING POLICY AGENDA FROM THE DEMOCRATS

The Democratic National Party has been rolling out a series of policy proposals it calls A Better Deal. Its goal is to provide a campaign message that will win the votes of middle-income workers, many of whom voted for Trump because they felt they’d been forgotten by the Democratic Party. [1]

The first piece, presented in July 2017, focused on the economic well-being of workers and the middle class. It was subtitled: Better Jobs, Better Wages, Better Future. It’s three major components are:

  • Higher wages and better jobs. Raise the minimum wage to $15 an hour by 2024. Create 15 million good jobs by spending $1 trillion on infrastructure and supporting small businesses. Ensure that workers can retire with dignity by protecting Social Security, pensions, and Medicare. Fight the loss of jobs to other countries.
  • Lower the cost of living for families. Lower the costs of drugs, post-secondary education, child care, cable TV and Internet service, and credit cards. Curtail the monopolistic practices of large corporations that lead to higher prices and reduced consumer choice. Provide paid leave for a new child or a family member’s illness.
  • Tools workers need to succeed in the 21st century. Expand public investment in education, training, and other tools workers need to succeed in the 21st Provides incentives to employers to invest in their workers’ skills and knowledge, including through apprenticeships.

(See a more detail summary these policy proposals in my previous post and my post critiquing them.)

The second piece, unveiled on May 8, 2018, focused on housing and communities and was subtitled: Public Housing & Ladders of Opportunity for American Families. It has four major components:

  • Repair America’s aging public housing. Invest $6 billion a year for five years to eliminate the deferred maintenance in public housing, including eliminating all major lead and mold hazards, improving energy efficiency, and making units accessible for residents with disabilities. Provide $9 billion a year in ongoing operations and maintenance funding.
  • Empower residents to fully participate in governance of their public housing. Facilitate the active involvement and participation of public housing residents in governance and increase tenant protections during relocation for renovations.
  • Ensure public housing agencies have the tools to connect residents to opportunity. Provide resources and tools to improve employment opportunities, earnings potential, and health outcomes for public housing residents by investing in job training and counseling services; educational programs; after-school enrichment programs; and access to other services.
  • Provide comprehensive solutions for the communities surrounding public housing. Invest $2 billion annually to rehabilitate and transform neighborhoods where public housing is located, while leveraging private resources as well.

The third piece, unveiled on May 21, 2018, focused on elections and ethics and was subtitled: Fixing our broken political system and returning to a government of, by, and for the people. Its three major components are:

  • Empower the American voter. Protect every citizen’s right to vote and the security and accuracy of our voting systems. End partisan gerrymandering.
  • Strengthen our nation’s ethics laws. End the influence of big money in election campaigns and of lobbyists. Close the revolving door between government jobs and positions working for private sector special interests.
  • Fix our broken campaign finance system. Break the stranglehold of wealthy campaign donors on our democracy. Pass a constitutional amendment to overturn Citizens United and end the undue influence of big money in our elections, especially of unaccountable “dark” money from undisclosed donors. Increase and multiply the power of small campaign donors, while supporting new and diverse candidates. Improve enforcement of existing campaign finance laws.

The most recent piece, unveiled on May 22, 2018, focused on education and was subtitled: A Better Deal for Teachers and Students. It had five components, which it proposes paying for by rescinding the recent tax cuts for wealthy individuals and corporations:

  • Dedicate $50 billion over 10 years to increasing teachers’ compensation. Recruit and retain a strong, diverse workforce.
  • Establish a $50 billion fund for school infrastructure. Invest in up-to-date buildings and classrooms, as well as educational technology and materials, for all students.
  • Provide additional support to schools serving children from low-income families. Ensure all students have access to academic opportunities and a rich curriculum, including computer science, music, and civics.
  • Protect teachers’ right to join a union. Ensure that teachers can collectively negotiate for better pay and conditions.
  • Fulfill the federal promise to fund 40% of the cost of special education.

While A Better Deal’s four proposals present a wide-range of policy proposals and are fairly specific about some of them, they do not present a vision or comprehensive policy agenda in the way An Economic Agenda for America’s Future does. (See my previous post on this proposal from the Campaign for America’s Future.)

While A Better Deal’s proposals could excite some voters and increase voter turnout by addressing issues that matter to working Americans, they are less inspiring and more policy wonkish than An Economic Agenda for America’s Future. They present a set of nuts-and-bolts, pragmatic, and sometimes bold steps, rather than a vision.

There are gaps in A Better Deal. For example, it doesn’t address climate change and greening the economy; support for unions (other than for teachers); a more progressive, fairer tax system to address economic inequality; reducing the power of the huge corporations including on Wall Street; and reforming our health care system.

A Better Deal is viewed by some as timid and underwhelming. It doesn’t clearly renounce growing economic inequality and the greed of corporate executives. It doesn’t provide a truly inspirational message such as the one Senator Bernie Sanders delivered in the 2016 primary.

The support for A Better Deal from Democratic members of Congress and the Party’s leadership isn’t strong and solid, and, therefore, the Party’s messaging is not consistent and effective. Similarly, Democratic candidates don’t yet appear to have widely, let alone enthusiastically, adopted A Better Deal for their campaign messaging.

I’m interested in your comments on this post. Do you think A Better Deal will motivate voters to vote for Democrats this fall?

[1]      Cottle, M., 7/31/17, “Democrats pitch a kinder, gentler populism,” The Atlantic (https://www.theatlantic.com/politics/archive/2017/07/the-struggle-to-sell-a-better-deal/535410/)

AN ECONOMIC AGENDA FOR AMERICA’S FUTURE

The policy agendas of progressive candidates (see my previous post for some examples) tend to be presented in a piecemeal fashion that makes it hard to grasp an overarching progressive vision or set of goals. In this post I will summarize the proposal from the Campaign for America’s Future for an overall progressive policy agenda for the US. This proposal highlights policies that could excite voters and increase voter turnout by addressing issues that truly matter to working Americans.

The Campaign for America’s Future calls its proposal An Economic Agenda for America’s Future. It consists of 11 components and at their website you can sign on and pledge to support their agenda. Here are its 11 components or planks:

  • Jobs of all. Provide jobs with good wages and benefits by investing in the rebuilding and modernization of our roads, railroads, water and sewer systems, energy systems, and public buildings including schools. These investments will make our economy more productive and reduce economic inequality. Public service jobs would also be a part of this initiative.
  • Invest in a green economy. Strategic public policies can support renewable energy and energy efficiency while moving us away from polluting, carbon-based fuels. The results will be good jobs in growing industries and sustainable energy sources that will reduce emissions linked to climate change.
  • Empower workers to reduce inequality. Workers need to be able to bargain collectively with employers through membership in unions. Otherwise, the power of employers overwhelms that of workers and the profits from workers’ labor are given to corporate executives and stockholders, not workers. As workers’ power has declined over the last 38 years, their wages have stagnated while executives pay has skyrocketed; their benefits have languished – pensions have disappeared, health insurance is more expensive if available, paid sick and vacation days are less common as part-time and contingent work has expanded – while perks for executives are ever more lavish. Policies that allow executives to benefit from short-changing workers need to be changed.
  • Opportunity and justice for all – with a focus on communities harmed by racism. Starting with Jobs for all (see above), targeted investments are needed to provide economic opportunity for all people and communities. Neglected urban and rural communities, along with workers victimized by trade policies and employment practices that benefit large corporate employers, should be targeted by policy changes and economic investments. Ending mass incarceration and racism in all phases of our criminal justice system, along with enhancing rehabilitation and re-entry for those incarcerated, are essential to providing justice for all. Fair and humane policies and treatment for all people regardless of immigration status, race or ethnicity, nationality, gender, or sexual orientation are required to live up to the promises of our democracy.
  • Guarantee women’s economic equality. Women should earn the same pay and have the same opportunities in the workplace as men. Women must have the supports necessary to balance motherhood, parenting, and work, including access to paid leave for childbirth and affordable, high quality child care. Women must be free from all forms of sexual harassment and must have the right to make their own choices about health and reproductive issues. Women should be able to look forward to a secure retirement, in part based on being awarded Social Security credit for work done in the home supporting a family.
  • High-quality public education – pre-k to university. Education is a public good that benefits all of society. Governments at the local, state, and federal level must together provide equitable financing so all children have access to high-quality public schools and educational opportunities across the age spectrum. Post-secondary education or skills development should be free at public institutions – as it was in many states in the 1950s and 1960s – and student debt should be canceled. This will stimulate economic growth and unleash the potential of students who are now restricted in their life choices by their education debt.
  • Medicare for all – and shared economic security. Health care is a right, which requires moving to a universal, Medicare for all health care system. Furthermore, everyone deserves a secure retirement and economic security in their working years through a publicly-funded safety net that supports them if they lose their job, have an accident, or suffer a medical problem. No one in America should be homeless, hungry, or without access to health care.
  • Make corporations and the wealthy pay their fair share. Large, often multinational, corporations and rich individuals are not paying their fair share in taxes. Nonetheless, they reap the greatest benefits from public investments. Their tax rates have been lowered time and again over the last 38 years and the portion of government revenue they provide has fallen dramatically. Furthermore, tax rates on income based on wealth – income from stocks and other investments – are lower than the tax rates on income earned through work, so the wealthy get wealthier and workers struggle to make ends meet. Closing tax loopholes and exemptions that benefit wealthy individual and corporations, along with a small sales tax on purchases of financial instruments, will make our tax system fairer, reduce economic inequality, and provide the revenue needed for public investments and a fair safety net.
  • A global economic strategy for working people. Our global trade and tax policies benefit multinational corporations. We need to change these policies to protect workers, consumers, and the environment. Our national security policies benefit the military-industrial complex and are biased toward military interventions. We need to change these policies to make war a last resort and to focus on diplomacy and the global threats of climate change, poverty, and inequality. We should reduce the military budget and support humanitarian programs at home and abroad instead.
  • Close Wall Street’s casino. Deregulation of Wall Street left us with huge financial corporations that devastate our economy when they fail, are too complex to manage, and are too powerful to seriously punish, as with jail time for executives. Their financial speculation presents risks to our economy and is economically unproductive. Meanwhile, workers and small businesses suffer from the financial corporations’ business practices and the volatility they create in the economy. We need to break up the giant financial corporations, institute a speculation tax, and provide safe, affordable banking services through local banks and the postal system. Payday lenders and others who exploit low-income and vulnerable working families should be shut down.
  • Rescue democracy from special interests. The great wealth and hence power of wealthy individuals and corporations are being used to corrupt our elected officials and public policies. Through campaign spending, lobbying, and other strategies, the wealthy have rigged our economy to their benefit, resulting in dramatically increasing economic inequality. We must reassert democratic values through 1) public financing for elections that rewards small contributions by large numbers of people, 2) banning huge expenditures by the wealthy, and 3) through voting procedures that encourage everyone to vote, not ones that place barriers in front of voters, particularly people of color, young people, and low-wage working people. We need progressive candidates who will work to take back our democracy and economy for everyday working people.

I’m interested in your comments on this post. Is there a particular plank of this proposal that would make you more inclined to vote for a candidate?

My next post will summarize the Democratic National Party’s A Better Deal proposal.

PROGRESSIVE POLICIES BUILT ON FDR’S ECONOMIC BILL OF RIGHTS

The policy agendas of progressive candidates (see my previous post for some examples) tend to be presented in a piecemeal fashion that makes it hard to grasp an overarching progressive vision or set of goals. In this and my two next posts, I will summarize proposals for an overall progressive policy agenda for the US. These proposals highlight policies that could excite voters and increase voter turnout by addressing issues that truly matter to working Americans.

The American Prospect magazine, the premier journal for US progressive policy analysis and proposals, recently published an article entitled “An Economic Bill of Rights for the 21st century” by Paul, Darity, and Hamilton. [1] It builds on President Franklin D. Roosevelt’s 1944 proposal for a Second Bill of Rights, a set of economic rights that would complement the political rights guaranteed by the original Bill of Rights. FDR’s proposal was never adopted, of course, but the need for an economic bill of rights is as clear today as it ever was.

As FDR noted, people who struggle to make ends meet are not free to engage in the pursuit of happiness that our Declaration of Independence promises. He went on to say that “Necessitous men are not free men. People who are hungry and are out of a job are the stuff of which dictatorships are made.” True freedom, according to FDR, requires the following economic rights:

  • The right to a useful and remunerative job,
  • The right to earn enough to provide adequate food and clothing and recreation,
  • The right of every businessman … to … freedom from unfair competition and domination by monopolies,
  • The right of every family to a decent home,
  • The right to adequate medical care and the opportunity to achieve and enjoy good health,
  • The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment, and
  • The right to a good education. [2]

FDR died before he could enshrine these economic rights in policies let alone the Constitution. Moreover, his New Deal, which had rewritten many of the rules of our economy to increase economic fairness and security, was the result of a political deal with southern segregationists, probably out of necessity for getting the New Deal passed, that excluded Blacks. US government policies since then have often explicitly, and almost always at least implicitly, excluded Blacks from economic justice and opportunity. The Jim Crow policies in the south exacerbated the racial discrimination of federal policies.

The civil rights movement, Martin Luther King’s Poor People’s Campaign (which linked economic justice with civil rights), and President Johnson’s War on Poverty of the 1960s marked a resurgence of a focus on economic justice and security. Nonetheless, highly unequal economic outcomes are clearly evident today, especially by race and ethnicity but also to a growing degree by class.

For the past 40 years, our two major political parties have both embraced policies that rely on market forces and market-based solutions for meeting social and human needs, while reducing the role of government, deregulating business’s activities, and moving toward uncontrolled capitalism.

As a result, the middle class is under siege. Its incomes have stagnated for 40 years (when adjusted for inflation) and it is experiencing high levels of economic insecurity due to the instability of employment and reduced pay and benefits from the jobs that are available. Economic inequality has sky rocketed and economic mobility has declined. Poverty remains high, especially for children (who are most vulnerable to its long-term negative effects); 43 million Americans live below the official government poverty line, which is out-of-date and dramatically understates the cost of living in most, if not all areas, of the country.

This economic reality is the result of policy choices not inevitable economic evolution. FDR’s economic rights above are clearly still very relevant. Furthermore, the authors identify three additional economic rights that are necessary today to ensure an economy that provides opportunity and security for everyone:

  • The right to sound banking and financial services,
  • The right to a safe and clean environment, and
  • The right to a meaningful endowment of resources as a birthright.

This birthright endowment is an innovative proposal by the authors to address the high levels of economic inequality in both income and wealth. (Wealth is even more unevenly distributed, particularly across race and ethnicity, than income.) Wealth (i.e., savings or economic reserves) is an essential component of economic security and social well-being. The ability to be resilient when an economic shock occurs – a sudden loss of a job, a health emergency, an accident – is critical. Yet almost half of American households do not have $400 of wealth or savings to see them through an economic shock. Moreover, for every dollar of wealth or savings held by whites, Blacks and Latinos have only 5 cents and 6 cents respectively. In other words, white household wealth is, on average, 20 times that of Blacks and almost 17 times that of Latinos.

The authors’ proposal addresses this dramatic inequality by giving every American, at birth, an endowment that would be held in trust until he or she reaches adulthood. Then, the individual could spend the money on an asset building activity such as paying for higher education, buying a home, or starting a business.

The endowment would be universal, but its amount would vary: babies born into the wealthiest families would receive $500 and those born into families with no or minimal wealth would receive $50,000. This would attempt to level the playing field, given the implicit endowment that affluent families are able to provide to their children. Estimates indicate that the cost would be about 2% of the federal budget. The federal budget currently spends a similar amount on another policy that supports households in building wealth: the home mortgage interest deduction. By reducing this support for wealth building through home ownership, which provides its biggest benefits to already wealthy households, the federal government could pay for the proposed “baby bonds.” This would go a long way toward providing economic opportunity and security for every baby born in America, as well as reducing wealth inequality. As another option, the “baby bonds” could be paid for, in whole or in part, by cutting the budget of the Defense Department (which is about 15% of the federal budget), by up to 13%. (Many analysts believe the defense budget is bloated with unnecessary expenditures and waste that primarily benefits the wealthy corporations of the military-industrial complex.) Another option to pay for the “baby bonds” would be to reduce the tax cuts that were passed in December 2017; they will cost over twice as much as these “baby bonds” would and, rather than reducing economic inequality, the tax cuts will exacerbate inequality because they primarily benefit already wealthy corporations and individuals.

I’m interested in your comments on this post. What do you think of this proposal for “baby bonds” – a birthright endowment to give every new baby a more or less equal opportunity for success in life? In particular, would you be more inclined to vote for a candidate who supported “baby bonds”?

My next post will summarize the proposal of the Campaign for America’s Future, which it calls: An Economic Agenda for America’s Future.”

[1]      Paul, M., Darity, Jr., W., & Hamilton, D., 3/5/18, “An economic bill of rights for the 21st century,” The American Prospect (http://prospect.org/article/economic-bill-rights-21st-century)

[2]      Wikipedia, retrieved 7/28/18, “Second Bill of Rights,” (https://en.wikipedia.org/wiki/Second_Bill_of_Rights)

WINNING ELECTIONS BY EXCITING VOTERS WITH PROGRESSIVE POLICIES

We need to elect people to Congress in November who will stand up to vested and powerful interests (namely wealthy individuals and large corporations) on behalf of everyday working people and families. We need to do this to rescue our democracy from plutocracy. This will require a high voter turnout, which will happen only if voters are excited and enthusiastic about the candidates they are voting for. It does not happen if voters are just voting against the other candidate or party, or for the lesser of two evils; that is not enough to motivate many voters to get out and vote.

In the last presidential election, despite all the attention it got, less than 56% – barely half – of eligible citizens actually voted. Although Trump and Clinton each excited a relatively small segment of voters, the electorate at large was not excited by either of these two candidates. Senator Sanders in his run for the Democratic nomination excited more voters and had more voters enthusiastically voting for him than either Trump or Clinton. President Obama excited enough voters, particularly Blacks, in his 2008 run for president that 62% of eligible voters went to the polls, which is the highest turnout since 1970, but still well below voter turnout among most of the other relatively wealthy democracies. (I’ll do a subsequent post on low voter participation in the US and reasons for it.).

If Democrats want to win in November, they need to put forward a clear, progressive agenda that will excite and motivate a broad swath of the electorate. Such a strategy has the potential to increase turnout substantially by getting people who vote irregularly or who have never voted excited and wanting to go vote. This is particularly important in non-presidential elections when typically, only 40% of eligible voters go to the polls. Some Democrats think that running against President Trump and the Republicans who are enabling his behavior and policies will lead them to electoral success. This is a risky strategy; it’s much better to be running for something than against something.

Exciting and motivating voters is what Senator Sanders did in his surprisingly successful and almost victorious campaign for the Democratic presidential nomination. This is what Alexandria Ocasio-Cortez did in winning a shocking upset in her recent primary election victory for a US House seat in New York. This is what Senators Merkley and Warren and others are doing in their re-election bids. And what a wide range of candidates for local, state, and national offices are doing across the country. It is why Sanders and Ocasio-Cortez were in Kansas supporting two candidates for Congress, James Thompson and Brent Wilder. Overflow crowds of thousands enthusiastically rallied for these progressive candidates in Republican Kansas. [1]

An emerging progressive movement is evident in at least four candidates for Governor (in Florida, Maryland, Michigan, and New York), at least 53 congressional candidates, and too-numerous-to-count candidates for state legislatures and local government posts. [ 2] These candidates are listening to the grassroots and to polls that show what Americans want from their government – good jobs with fair pay, good K-12 public education, affordable higher education, support for balancing work and family, a health care system that works (with many specifically supporting a single-payer system or Medicare-for-all), and economic security. Unfortunately, many of the leaders of the Democratic party are resisting this progressive ground swell of energy, fighting against it by supporting centrist and corporate-leaning candidates rather than progressive, grassroots candidates.

Many in the media and some political pundits are describing this progressive movement as “far left.” That may be true in today’s political climate, but it is not true historically. Many of the progressive policies being espoused by the current progressive movement were mainstream Democratic policies in the 1960s and a surprising number of them were supported by Republicans then as well. As a more recent example, believe it or not, the individual mandate of the Affordable Care Act (ACA) – the requirement that everyone buy health insurance – was a conservative, Republican think tank policy proposal. Despite the vehement Republican attacks on the individual mandate ever since the ACA was proposed – and Democrats’ unwillingness to defend it with any vigor – the individual mandate was proposed by the very conservative and Republican Heritage Foundation as part of its plan for comprehensive national legislation to provide universal “quality, affordable health care.” The plan was introduced in a 1989 book, “A National Health System for America,” by Butler and Haislmaier. [3]

In labeling current progressive policy proposals as “far left,” people are forgetting that President Clinton and other Democrats in the late 1980s and 1990s moved the Democratic Party a long way to the right and toward the political center in their efforts to win the presidency after 12 years of Republican presidents and then to win Clinton’s re-election.

The emerging progressive movement is getting short shrift from our mainstream media. A dramatic example is the lack of media coverage of the Poor People’s Campaign. From late May through June, it sponsored 40 days of action including multiple rallies and civil disobedience actions in Washington, D.C., and 30 state capitals but it got almost no coverage in the mainstream media. Thousands of people demonstrated, and hundreds were arrested for civil disobedience, but coverage was minimal. It was organized to commemorate the 50th anniversary of Martin Luther King’s original Poor People’s Campaign that linked the issues of civil rights and economic justice for all. [4] [5]

A number of groups have been organized to support progressive, grassroots candidates including Our Revolution (the spinoff from Senator Sanders presidential campaign), the Progressive Change Campaign Committee (which describes itself as the Senator Elizabeth Warren wing of the Democratic Party), the Working Families Party, Indivisible, Justice Democrats, and Brand New Congress. They provide numerous opportunities to support progressive candidates and activities, if you’re so motivated.

These organizations and the candidates they support are putting forth a progressive policy agenda. However, they tend to do so in a piecemeal fashion that makes it hard to grasp or summarize overall goals. In my next posts, I will summarize various proposals for an overall progressive policy agenda for the US that would excite voters by addressing issues that truly matter to working Americans.

[1]      Nichols, J., 7/20/18, “Sander and Ocasio-Cortez rally Kansas for a working-class politics that stands up to the Kochs,” The Nation (https://www.thenation.com/article/sanders-ocasio-cortez-rally-kansas-working-class-politics-stands-kochs/)

[2]      Burns, A., 7/21/18, “There is a revolution on the left. Democrats are bracing,” The New York Times

[3]      Roy, A., 10/20/11, “How the Heritage Foundation, a conservative think tank, promoted the individual mandate,” Forbes (https://www.forbes.com/sites/theapothecary/2011/10/20/how-a-conservative-think-tank-invented-the-individual-mandate/#720de15a6187)

[4]      Sarkar, S., 5/23/18, “Hundreds of Poor People’s Campaign activists got themselves arrested for racial justice,” Common Dreams (https://www.commondreams.org/views/2018/05/23/hundreds-poor-peoples-campaign-activists-got-themselves-arrested-racial-justice)

[5]      Corbett, J., 6/21/18, “‘Stop the war! Feed the poor!’: March by Poor People’s Campaign ends with arrests in DC,” Common Dreams (https://www.commondreams.org/news/2018/06/21/stop-war-feed-poor-march-poor-peoples-campaign-ends-arrests-dc)

IS THE DEMOCRATS’ “BETTER DEAL” A GOOD DEAL?

Congressional Democrats recently announced a package of policy proposals they are calling “A Better Deal.” It is apparently their policy platform for the 2018 Congressional elections and it seeks to re-establish Democrats as the party that stands up for working people. There is much in it for workers to like. (See my previous post here for a summary of it.)

However, some important pieces are missing from A Better Deal. [1] For example, it doesn’t clearly address:

  • Making it easier for workers to unionize and harder for employers to eliminate or prevent unionization. This would strengthen the collective bargaining power of workers so they could better balance the growing power of employers in negotiations over pay and benefits.
  • Creating a more progressive, fairer tax system to address economic inequality and provide the revenue needed for A Better Deal’s programs.
  • Reducing the power of the huge Wall Street financial corporations and the threat they represent to our economy. [2]
  • Reforming the health care system and its out-of-control costs. It doesn’t call for a Medicare-for-All type single-payer insurance system, despite strong evidence that this is the only way to both control costs and improve quality, and despite broad support for Medicare-for-All among the public and from over 100 members of Congress. (See my post here for why single-payer is the only way to address the problems with our health insurance system.)
  • Increasing the transparency of the process for developing trade agreements and eliminating the trade dispute resolution system that favors multi-national corporations and undermines workers, the public, and even national sovereignty. [3]

A Better Deal is viewed by many as timid and underwhelming. It doesn’t clearly renounce growing economic inequality and the greed of corporate executives. It could, for example, propose penalties and/or taxes on corporations where executive pay is over 20 times that of a corporation’s lowest-paid worker or over 20 times the national median wage. This is what the Labour Party in the United Kingdom has proposed. [4] In the US, this would mean penalties or taxes on corporations where an executive is paid over $290,000 and the corporation has a minimum wage employee, or where any executive is paid was over $605,000 (based on 20 times the national median personal income of $30,240). [5]

A Better Deal is a step toward counteracting the frustration of workers and the middle class and the resultant losses Democrats have sustained in recent state and national elections. However, it is not generating much grassroots enthusiasm. Although it is clearly targeting some of the issues raised by Senator Bernie Sanders in his presidential campaign, it is not generating anywhere near the groundswell of grassroots support that Senator Sanders, or for that matter President Trump’s campaign, stimulated. Part of the lack of excitement about A Better Deal has to do with the shortcomings of its policy content and part of it has to do with its presentation.

Calling the proposal “A Better Deal” is not inspiring or visionary, which is what the Democratic Party needs to be if it wants to win elections. Simply saying that its proposal is better than what the Republicans are proposing or than the current status quo is not saying much. “Better” is not enough to get voters excited and enthusiastic enough to turn out and vote. Hillary Clinton lost the presidency because she did not inspire and excite voters. Turnout in the 2016 presidential election was only 53% of eligible voters! If it wants to win the 2018 or subsequent elections, the Democratic Party needs a strong, inspiring message and a good media strategy that will energize people to get out and vote for its candidates.

I’m surprised the Democratic Party didn’t build A Better Deal and its 2018 election strategy on the People’s Budget that has been developed by its Progressive Caucus in the US House. (See my posts on the People’s Budget here and here.) The People’s Budget includes specific proposals for reforming our tax system to increase fairness and to generate the revenue needed to fund the programs it and A Better Deal recommend. The People’s Budget includes a larger program to build the infrastructure America needs and is specific about increases in domestic spending that are needed to support workers and the middle class, as well as to mend our safety net for people who fall on hard times. It also is specific about the need to strengthen workers’ ability to unionize and negotiate with employers for better pay and benefits.

On the other hand, A Better Deal has more specific proposals than the People’s Budget for rolling back provisions in trade treaties that favor multi-national corporations and undermine workers. It also is more specific about the need to restrict foreign countries’ currency manipulation and monopolistic behavior by large corporations (by strengthening anti-trust laws and their enforcement).

If the Democrats could unify in support of a proposal that combined the best elements of A Better Deal and the People’s Budget, and added an unequivocal call for a Medicare-for-All type, single-payer health insurance system, they would have a policy and election agenda that would be truly visionary and inspiring. The country needs leadership focused on a clear commitment to supporting workers and the middle class. The Democrats have a golden opportunity to provide it, but it isn’t yet clear whether they will seize the opportunity.

Clear, consistent promotion of A Better Deal is not yet evident. And actions will speak louder than its words. However, no action on its promises is yet evident in Washington. Its impact, both practically and politically, will depend on:

  • Clearly spelling out the details of its policy proposals and adding missing pieces,
  • Developing a strong message promoting its goals,
  • Taking definitive actions to move its agenda forward, and
  • Generating consistent and enthusiastic support for it from all Democratic members of Congress and the Party leadership.

[1]      Reich, R., 7/28/17, “How much better is the Democrats’ ‘Better Deal’?” Yahoo! News (2 min. video) (https://www.yahoo.com/news/robert-reich-democrats-better-deal-211752649.html)

[2]      Carney, E.N., 7/27/17, “Is the Democratic Party’s ‘Better Deal’ good enough?” The American Prospect (http://prospect.org/article/democratic-party%E2%80%99s-better-deal-good-enough)

[3]      Bernstein, J., & Spielberg, B., 8/17/17, “Democrats’ ‘Better Deal’ on trade is better than what we have now,” The American Prospect (http://prospect.org/article/democrats-better-deal-trade-better-what-we-have-now)

[4]      Pizzigati, S., 7/26/17, “Will Democrats in Congress go bolder or backwards?” Inequality.org (https://inequality.org/great-divide/democrats-congress-need-go-bolder-not-backwards/)

[5]      Wikipedia, retrieved 9/7/17, “Personal income in the United States” (https://en.wikipedia.org/wiki/Personal_income_in_the_United_States)

THE DEMOCRATS’ “A BETTER DEAL”

Congressional Democrats have announced a package of policy proposals they are calling “A Better Deal.” It’s apparently their policy platform for the 2018 Congressional elections and its focus is on re-establishing Democrats as the party that stands up for working people. It proclaims that too many American families feel that the rules of our economy are rigged against them. It notes that incomes and wages are not keeping up with the cost of living for many workers. It states that large corporations, the rich, and other special interests are avoiding paying taxes and meanwhile are spending huge sums of money to influence our elections. Democrats claim that A Better Deal will grow and strengthen the middle class and reverse the failure of so-called trickle-down economic policies (i.e., tax cuts for the wealthy) to do so.

A Better Deal has three overarching goals: [1]

  • Raise the wages and incomes of American workers and create millions of good-paying jobs,
  • Lower the costs of living for families, and
  • Build an economy that gives working Americans the tools to succeed in the 21st Century.

A Better Deal calls for raising the national minimum wage to $15 an hour by 2024 and then increasing it automatically so it keeps up with inflation. A Better Deal promises that Democrats will fight the offshoring of Americans’ jobs by penalizing corporations that move jobs overseas and by cracking down on unfair trade policies of other countries, including currency manipulation. It calls for renegotiating the NAFTA trade agreement with Canada and Mexico to increase US exports and jobs, while also improving wages. Federal contractors who move jobs to foreign countries would be penalized and there would be Buy American requirements in government purchasing.

The Democrat’s plan calls for $1 trillion in federal spending on the infrastructure, such as bridges, roads, railroads, airports, and waterways, that is the transportation backbone of our economy. The plan projects that 15 million good-paying jobs would be created by these investments. It would also support job creation by prioritizing support for small businesses and entrepreneurs over benefits for large corporations. It would invest in research and innovation, as well as making high-speed Internet service available to everyone. It pledges to ensure that workers will be able to “retire with dignity,” by protecting pensions, Social Security, and Medicare.

A Better Deal calls for lowering the costs of drugs, post-secondary education, child care, cable TV and Internet service, and credit cards. It promises a crackdown on big price increases by pharmaceutical corporations as well as their practices that drive up drug costs. Medicare would be allowed to negotiate drug prices (which it is currently barred by law from doing!).

A Better Deal would curtail the monopolistic practices of large corporations that lead to higher prices and reduced consumer choice. It notes that concentrated market power leads to great political power, which has been used by big corporations to obtain beneficial policies from government. Strengthening anti-trust laws and their enforcement are identified as key strategies for achieving these goals. A Better Deal calls for eliminating unlimited and/or undisclosed spending by corporations and the wealthy in our elections, as well as reducing the power and influence of lobbyists and special interests.

A Better Deal promises paid leave for workers when they are sick or when a family situation merits taking time off. Paid leave for a new child or a family member’s illness would be covered. It notes that this will keep families healthy, both medically and financially.

In A Better Deal, Democrats commit to expanding government investment in workers’ access to the education, training, and other tools they need to succeed in the 21st Century. In addition, employers would receive incentives to invest in their workers’ skills and knowledge. Apprenticeships would be expanded and training programs would be better coordinated with businesses’ needs for workers.

There is much in A Better Deal for workers to like. Democrats appear to be recommitting themselves to putting workers first, ahead of monied interests, reversing their mid-1990s decision to cozy up to those with big money to get the funding they needed for their campaigns. Despite its good points, there are notable weaknesses in A Better Deal and its presentation that I will outline in my next post.

[1]      Schumer, C., retrieved 8/20/17, “A better deal,” U.S. Senate Democrats (https://democrats.senate.gov/abetterdeal/#.WZydEbpFzIU)

GENERATING THE REVENUE NEEDED TO INVEST IN AMERICA

The People’s Budget, an alternative budget for the US, presents a coherent vision and a detailed plan for generating the revenue needed to invest in America’s infrastructure and people. It includes specific proposals for increasing revenue, decreasing tax expenditures (i.e., loopholes and deductions), and increasing efficiency in the public and private sectors. These will more than pay for its spending proposals (which I summarized in my previous post). [1]

Current tax policy is failing in multiple ways. Tax cuts and tax avoidance have reduced government revenue so that it is insufficient to pay for needed spending. Tax policy changes over the last 35 years have exacerbated economic inequality and created complexity that favors politically powerful special interests and those who can afford sophisticated tax accountants and lawyers. The theoretical progressivity of income taxes has been lost through tax cuts, tax deductions, tax avoidance, and favored tax rates and loopholes for high-income individuals.

The People’s Budget addresses the inequities in our tax system through changes in individual and corporate tax laws. Income taxes on the richest individuals would be increased. The tax on income from investments would be raised so it is at the same rate as income earned from working. The People’s Budget also would reduce tax deductions that favor the wealthy, such as interest deductions for mortgages on vacation homes and yachts. It maintains a tax on estates worth over $3.5 million, which current proposals would eliminate. It would also reduce income inequality by increasing tax deductions for low-income families. [2]

Inefficient corporate tax loopholes would be eliminated. Corporate tax benefits from moving jobs, profits, and a corporation’s legal home overseas would be ended. The People’s Budget would ensure that corporations pay their fair share of taxes and that large, multi-national corporations do not enjoy more favorable tax treatment than small, US-based companies. Current tax loopholes make it hard for small businesses to compete with large multi-national corporations.

A small tax would be placed on financial transactions. This is essentially a small sales tax on the buying and selling of financial products, like (but at a much lower rate than) the sales taxes many of us pay on non-financial products we buy. In addition to generating hundreds of millions of dollars in annual revenue, it would also discourage quick turnaround, high-volume, speculative trading of securities that can destabilize markets and that provide no benefit to our economy.

The People’s Budget would close tax loopholes and end subsidies for fossil fuel corporations, while putting a price on carbon pollution. This would end the unjustifiable public subsidies of fossil fuel extraction and use, requiring those burning carbon fuels to pay the true costs of doing so. In addition, the People’s Budget would invest in energy efficiency and clean, renewable energy production.

Income and wealth inequality would be reduced by the tax reforms in the People’s Budget, as well as by its spending proposals, which were summarized in my previous post. The Economic Policy Institute’s (EPI) analysis of the People’s Budget concludes that it “would have significant positive impacts, including improving the economic well-being of low- and middle-class families, … and increasing tax progressivity and adequacy while reducing the deficit in the medium term.” [3]

The People’s Budget would reduce the federal government’s projected debt level by trillions of dollars over the next 10 years. This makes it clear that we can afford investments in our human and physical capital if we reform our individual and corporate tax systems. Furthermore, we can simultaneously reduce income and wealth inequality.

I believe that candidates and the party(ies) who fully embrace the vision and goals of the People’s Budget will find that the American public and voters will strongly support them. Senator Bernie Sanders’ presidential campaign was built on a very similar vision and received tremendous grassroots support. Although President Trump’s rhetoric supported elements of the People’s Budget and many people voted for him believing or hoping that he would bring this kind of change in direction to Washington, his actions to-date have not reflected the vision or goals of the People’s Budget. The Republican Party appears to have a totally different vision for America – one where the rich and large corporations do very well and where everyone else struggles to make ends meet.

The Democratic Party would seem to have every reason to embrace the People’s Budget’s vision and goals. Although the Congressional Progressive Caucus has 75 Democratic members in the House (out of 194 Democratic Representatives), the national Democratic Party has not adopted many of the key proposals of the People’s Budget. The Party has not committed itself to goals and a vision for America that puts the working and middle class before wealthy individuals and large corporations.

Our democracy is threatened. Plutocracy, where a relatively small number of wealthy individuals control the government, might be a more accurate description of our current political system. Currently, neither of our major political parties is committed to government of, by, and for the people, as opposed to wealthy individuals and corporations. The People’s Budget would change this.

I encourage you to contact your Representative and Senators in Congress to encourage them to support the Congressional Progressive Caucus’s comprehensive, well thought out proposals that make up the People’s Budget. We need to support the working and middle class, decrease income and wealth inequality, and invest in preparing America and Americans for the future. The People’s Budget makes it clear we can do this and lays out a realistic plan to do so.

[1]      Vanden Heuvel, K., 5/9/17, “Trump’s budget betrays his supporters. Here’s one that doesn’t.” The Washington Post

[2]      Congressional Progressive Caucus, retrieved 7/7/17, “The People’s Budget: A roadmap for the resistance,” https://cpc-grijalva.house.gov/uploads/FINAL%20CPC%20Budget%20FY18%20Executive%20Summary.pdf

[3]      Blair, H., 5/2/17, “‘The People’s Budget’: Analysis of the Congressional Progressive Caucus budget for fiscal year 2018,” Economic Policy Institute Policy Center (http://www.epi.org/publication/the-peoples-budget-analysis-of-the-congressional-progressive-caucus-budget-for-fiscal-year-2018/)

AN ALTERNATIVE BUDGET FOR THE U.S.

Meaningful alternatives to the policies being put forward in Washington, D.C., are available, but do not get the attention they deserve, particularly from our mainstream, corporate media. For example, the Congressional Progressive Caucus has prepared a detailed, well thought out alternative budget for the country.

The People’s Budget, as it is called, presents a coherent vision and plan for making our democracy and economy work for everyone, not just the wealthy. It promotes true full employment (i.e., full utilization of the workforce’s skills) and reduces income and wealth inequality. It is a comprehensive ten-year plan that provides much more detail than the budget document presented by the Trump administration. [1] It includes specific dollar amounts for all major budget items for fiscal year 2018, which starts Oct. 1, 2017, as well as for the next 10 years.

The Economic Policy Institute (EPI) has analyzed the People’s Budget and concluded that it would make our tax system more progressive (i.e., fairer) and increase revenue so we can afford to address national needs and priorities. In addition, it “would have significant positive impacts, including improving the economic well-being of low- and middle-class families, making necessary public investments, strengthening the social safety net, and … reducing the deficit in the medium term” (i.e., in 2-3 years). [2] The EPI estimates that the People’s Budget would bring the US economy to a full recovery from the Great Recession of 2008, increasing Gross Domestic Product (GDP, the total of all the goods and services produced by the US economy) by 2% and employment by 2.4 million jobs in the near term (i.e., over the next 1-2 years). It would end the under-use of productive resources, particularly the under-employment of the workforce, and improve productivity, which would produce growth in workers’ incomes and living standards.

The People’s Budget would spend $2 trillion over 10 years to repair our crumbling infrastructure and provide jobs. It would repair and modernize our energy, water and sewer, and transportation systems, while increasing access to reliable, high-speed internet services. The infrastructure spending would cover 92% of what the American Society of Civil Engineers has estimated is needed to make our infrastructure safe and up-to-date.

It would also invest in our human capital through spending on our education system. It would make health care and child care affordable. It would support the working and middle class and improve their economic security. It would strengthen our safety net programs while reducing the need for them. It would provide support to the strained budgets of state and local governments, supporting, for example, local public safety and K-12 education systems.

While the spending in the People’s Budget would increase the deficit in fiscal year 2018 (FY2018), it includes increases in revenue and decreases in tax expenditures that would not only pay for its spending proposals, but reduce the federal budget deficit in subsequent years. [3] (More detail on this in my next post.)

The People’s Budget would reverse the reductions in domestic spending that have been made over the last 10 years of austerity budget cutting and the previous 25 years of cuts and failure to keep up with inflation. These cuts have reduced spending for education, job training, research, aid to state and local governments, and just about every other type of non-defense public spending. Current non-defense discretionary spending is near a historical low and current budget plans would have it continue to decline over the next 10 years to new all-time lows. The government spending cuts of the last 10 years have been a major – if not the major – cause of the slow recovery from the 2008 Great Recession. The People’s Budget would gradually increase non-defense discretionary spending to its historical level as a percentage of GDP by 2022.

In the health care arena, the People’s Budget strengthens and improves the Affordable Care Act (aka Obama Care). It would provide a public, Medicare-like option in each state’s insurance market, providing competition for the private insurers. This would ensure that the private insurers must provide good coverage at reasonable rates to be competitive. It would also allow states to transition to a single-payer, Medicare-for-All type health care system if they would like to. It would expand access to mental health services and to drug addiction treatment. It would lower prescription drug costs by allowing Medicare to negotiate drug prices (as Medicaid, veterans’ health care, and private insurers currently do) and by reforming laws covering drug patents and pricing.

The People’s Budget invests in our human capital by supporting our education system from birth to career. It makes quality early care and education (aka good child care) affordable for all families. It invests in our K-12 education system and in special education from birth through age 21. It increases educational opportunities in computer science, allows refinancing of student debt, and makes debt free college a possibility for all students.

Workers are supported by increasing the minimum wage, strengthening collective bargaining rights, and addressing gender pay equity. It would increase funding for the safety net where needed, especially for assistance to workers whose jobs have been moved overseas. Support for small businesses would be increased to support job creation.

Overall, the People’s Budget is projected to cut the number of people living in poverty in half in 10 years. As part of its comprehensive plan, the People’s Budget also addresses problems with our support for veterans, our criminal justice system, our immigration system, and voting rights and elections. It would modernize and increase efficiency in the Defense Department, reducing military spending while increasing funding for diplomacy and international humanitarian programs.

Some people say we can’t afford the investments in our human and physical capital that the People’s Budget calls for. However, it includes specific proposals for increasing revenue, decreasing tax expenditures (i.e., tax loopholes and deductions), and increasing efficiency in the public and private sectors that will more than pay for its spending proposals. I’ll summarize these proposals in my next post.

[1]      Vanden Heuvel, K., 5/9/17, “Trump’s budget betrays his supporters. Here’s one that doesn’t.” The Washington Post

[2]      Blair, H., 5/2/17, “‘The People’s Budget’: Analysis of the Congressional Progressive Caucus budget for fiscal year 2018,” Economic Policy Institute Policy Center (http://www.epi.org/publication/the-peoples-budget-analysis-of-the-congressional-progressive-caucus-budget-for-fiscal-year-2018/)

[3]      Congressional Progressive Caucus, retrieved 7/7/17, “The People’s Budget: A roadmap for the resistance,” https://cpc-grijalva.house.gov/uploads/FINAL%20CPC%20Budget%20FY18%20Executive%20Summary.pdf

DEREGULATION AND THE ELECTION OF TRUMP

Thirty years of deregulation have produced a declining standard of living and reduced economic security for the working and middle class. This is causing them significant stress and anxiety. In particular, there is strong evidence of the toll this is taking on the members of the white working and middle class. After decades of increasing life expectancy among all Americans, the life expectancy of middle-aged (35 – 59 years old), non-Hispanic whites without a college education is now actually declining largely due to premature deaths from drug and alcohol abuse and from suicides. [1] These “deaths of despair” as they are being called, are linked to the stress of falling behind one’s own life expectations as well as relative to others. [2] [3] [4]

The loss of economic well-being for the working and middle class generally has produced real anger against the political establishment that has allowed and abetted it. Numerous books have been written on the alienation of this demographic group. [5] It’s no wonder many of them voted for Trump and against the Washington, D.C., establishment in 2016. Many of them felt they had no better way to express their anger or to demand change in our policies than to vote for Trump. The fact that Trump (despite some of his rhetoric) is the embodiment of everything that has driven workers to this brink of despair is the great irony of the election. It is also an indication of the incredibly deep frustration, anxiety, and despair felt by many in the middle and working class.

Both in the U.S. and internationally, democracy – the power of the people to drive policy making including regulation – has only been successful when corporate power is under control. Regulation of big corporations has historically been necessary for workers to have the economic security that allows them to realistically engage in life, liberty, and the pursuit of happiness. In a capitalistic society, a basic level of economic security is essential if individuals are to have the freedom to make important choices in their day-to-day lives (such as where to live and what education to obtain for themselves and their children). [6]

For a capitalistic democracy to work, market place rules and regulations are essential to maintain fair and competitive markets for consumers and workers. They are also necessary to keep large corporations from wielding controlling influence over government and undermining democracy. When President Teddy Roosevelt used anti-trust laws to break up giant corporations in the early 1900s, the focus was “less on the power of giant corporations to dominate markets and more on the power of giant corporations to dominate government.” [7]

The political establishment in Washington, D.C., appears either to have forgotten this lesson of the early 20th century or to have allowed themselves to be bought by the corporate elites. As a result, the anxiety, anger, and frustration of the working and middle class has grown to historic proportions. In the election of 2016, they voted for Trump for President to clearly repudiate the Washington establishment. The Tea Party wing of the Republican Party and the Bernie Sanders wing of the Democratic Party both reflect this same rebellion against the political establishment, albeit from opposite ends of the political spectrum.

How this anxiety, anger, and frustration gets expressed in the future is very much up for grabs. We’re likely to be in for a rocky ride politically as individual candidates and the political parties battle to channel this energy and emotion in elections and policy making.

If we want to have a democracy instead of a corporatocracy and to revitalize our working and middle class, we must restrain corporate power, both in the private market place and in the public sphere of government. Strong regulations that control corporate power; protect the well-being of workers, consumers, and the public; and ensure that political power rests with the people are essential. As Supreme Court Justice Louis Brandeis warned in the 1930s, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” [8] Clearly, Justice Brandeis understood that great wealth also means great political power, which, when concentrated in the hands of a few, is antithetical to democracy.

[1]      Boddy, J., 3/23/17, “The forces driving middle-aged white people’s ‘deaths of despair,” National Public Radio (http://www.npr.org/sections/health-shots/2017/03/23/521083335/the-forces-driving-middle-aged-white-peoples-deaths-of-despair)

[2]      Payne, K., 7/5/17, “Economic inequality goes well beyond the bank account,” The Boston Globe

[3]      Burke, A., 3/23/17, “Working class white Americans are now dying in middle age at faster rates than minority groups,” Brookings (https://www.brookings.edu/blog/brookings-now/2017/03/23/working-class-white-americans-are-now-dying-in-middle-age-at-faster-rates-than-minority-groups/)

[4]      Case, A., & Deaton, A., 5/1/17, “Mortality and morbidity in the 21st century,” Brookings (https://www.brookings.edu/wp-content/uploads/2017/03/casedeaton_sp17_finaldraft.pdf)

[5]      Kuttner, R., 10/3/16, “Hidden injuries of class, race, and culture,” The American Prospect (http://prospect.org/article/hidden-injuries-0) This is an insightful review of nine books on the “decline of the white working class and the rise of the Tea Party and Donald Trump.”

[6]      Kuttner, R., 4/7/17, “Corporate America and Donald Trump,” The American Prospect (http://prospect.org/article/corporate-america-and-donald-trump)

[7]      Warren, E., 2017, “This fight is our fight: The battle to save America’s middle class,” Metropolitan Books, NY, NY. p. 159

[8]      Warren, E., 2017, see above, p. 159

TO REGULATE OR DEREGULATE? THAT IS THE QUESTION

Regulations put in place after the financial collapse of 1929 and the resultant Great Depression served the country well. The current push for deregulation began with the deregulation of the railroad and trucking industries in the late 1970s. The consensus at the time was that regulations in these industries were not serving the public interest. Initial deregulation efforts worked to eliminate regulations that favored existing corporations and prevented competition from start-ups and innovators.

In 1982, anti-trust laws were used to break-up the AT&T monopoly on telephone service and introduce competition into the long-distance phone market. This reflected both strong regulation – the breaking up of a large corporation using anti-trust laws – and a belief that deregulation of the long-distance phone market coupled with the introduction of competition would best serve consumers.

During the late 1980s, the focus shifted to deregulation that benefited corporations rather than the public interest. Deregulation became “a mantra that can be translated to mean: let corporate America do more of whatever corporate America wants to do.” [1]

A telling example of this change in attitude is seen in the Consumer Product Safety Commission’s (CPSC) history. It was created in 1972 to protect consumers from dangerous products. It is responsible for the safety of all consumer goods except vehicles, guns, food, drugs, and cosmetics. Initially, it had 786 employees. However, as the regulatory focus shifted to benefiting corporations, it fell out of favor. In 2016, before Trump’s election, it was down to 567 employees, despite significant growth in the economy and in imports. Many imported products come from low wage countries with minimal safety standards. Therefore, the need for the CPSC to inspect and regulate goods has increased, while its capacity to do so has decreased. [2]

In a glaring example of its failure to live up to its initial promise and goals, in 2007, imported toys for young children that had lead paint (a neurotoxin) were not detected until well after the fact. For example, 1.5 million Thomas the Train components that had been imported and sold had to be recalled. [3] The weakening of the CPSC is occurring even though it reports that deaths, injuries, and property damage from consumer product incidents cost more the $1 trillion each year.

Since the late 1980s, the push for deregulation has reduced product safety standards; relaxed regulation of mergers, acquisitions, and financial practices (including allowing virtual monopolies); reduced on-the-job protections for workers; and weakened enforcement in many areas. Simultaneously, deregulation of the labor market has weakened workers’ bargaining power. The regulations that supported workers’ ability to bargain collectively with employers, largely through unions, have been undermined and weakened repeatedly since the 1980s. The formation of a union is now more difficult, while the ability to eliminate unions by outsourcing jobs overseas or hiring “replacement” workers has been made easier. As a result, union membership for private sector workers has declined from 25% in 1972 to 6% today.

Weak labor market regulation has allowed dramatic growth in the number of part-time, temporary, contracted, and consultant workers. This has undermined the economic security of the middle and working class, which was based on a full-time job with benefits. The explosive growth of the “gig” economy reflects this trend. Corporate employers have used the weak regulation of the labor market to restructure the workforce and reduce workers’ pay and benefits. As a result, fewer and fewer workers have employer provided health insurance, and when they do have it, they are typically paying a greater share of the cost and/or are footing the bill for higher co-payments for seeing doctors or getting prescription drugs. The guaranteed retirement incomes of pensions are largely a thing of the past. Workers are now much more likely to have to self-fund retirement through contributions to retirement savings accounts (sometimes with employer matching contributions). Furthermore, the investment decisions and risk fall on the worker. This decreases economic security for workers and gives financial corporations and advisors opportunities to charge fees and make commissions that often undermine the return on investment for workers, who typically are not sophisticated investors. As a result, workers are much less likely to be able to afford to retire at normal retirement age and are less likely to be financially secure in retirement.

The financial collapse of 2008, which was caused by the deregulation of the financial industry, robbed many in the working and middle class of their living standard and the last vestiges of their economic security. It destroyed many of their middle-class jobs and also their equity in their homes. Over 60% of U.S. households experienced a decline in wealth and many of those who didn’t lose wealth simply didn’t have any savings or assets to lose (e.g., the young and the poor). Although the high unemployment of the Great Recession has now finally declined after 8 years, high under-employment remains. Many workers are now in lower paying jobs for which they are over-qualified or are working part-time or in the “gig” economy instead of in full-time jobs, let alone ones with benefits.

Simultaneously, these workers watched the federal government bailout the Wall Street corporations and allow their executives not only to avoid penalties or jail, but to continue to enjoy huge paydays. There was no bailout for homeowners or laid off workers.

Although Republicans have typically been the politicians leading the charge on deregulation for the benefit of big corporations, many Democrats have not been far behind in their support of the deregulation agenda. Somewhat surprisingly, big corporations themselves have largely escaped the wrath of workers and the public, at least to-date. [4] This is partly because neither of our major political parties or any other powerful group has pointed the finger in their direction. Conversely, there are well-funded media, think tanks, public relations, and other initiatives that have promoted the deregulation and pro-corporate message.

My next post will link deregulation and its effects with the election of President Trump.

[1]      Warren, E., 2017, “This fight is our fight: The battle to save America’s middle class,” Metropolitan Books, NY, NY. p. 79

[2]      Steinzor, R., 4/17/17, “The war on regulation,” The American Prospect (http://prospect.org/article/war-regulation-0)

[3]      Lipton, E., & Barboza, D., 6/19/07, “As More Toys Are Recalled, Trail Ends in China,” The New York Times

[4]      Kuttner, R., 4/7/17, “Corporate America and Donald Trump,” The American Prospect (http://prospect.org/article/corporate-america-and-donald-trump)

TAX REFORM FOR THE WEALTHY

After the failure of the Republican health care reform proposal, the Trump administration and Congressional Republicans may turn their attention to tax reform. As with their health care reform, WATCH OUT!

House Speaker Paul Ryan, one of the architects of the health care reform proposal, has a tax reform plan. However, despite unprecedented levels of income and wealth inequality in the US, it would exacerbate inequality, not reduce it.

House Speaker Ryan’s tax plan would give huge tax cuts to high income households and very modest ones to everyone other than the 5% richest households. The other 95% of households – those with incomes of less than roughly $300,000 – would receive an average tax cut of less than $400 per year. Households with incomes of less than $25,000 would get an average tax cut of only $50 per year. [1]

The richest 1% of households – those with incomes of more than $700,000 – would receive an average tax cut of about $200,000 per year. And the richest 0.1% of households – those with incomes of more than $3,700,000 – would receive an average tax cut of about $1,200,000 per year or $12 million over 10 years! Clearly, this would make income inequality worse, not better!

Speaker Ryan’s plan would cut individual income taxes by approximately $3 trillion over 10 years, with 76% of the cuts going to the richest 1% and 47% of the cuts going to the richest 0.1%. Over time the benefits become even more skewed, with the top 1% getting 99.6% of the benefits by 2025.

The highest tax rate on unearned interest income would be cut from 43.4% to 16.5%, while the top rate on capital gains and dividends would be cut from 23.8% to 16.5%. This means that an individual, working hard and earning a modest $50,000, would be paying income tax at a rate of 25%, while a wealthy individual with $50,000 in unearned income from investments would be paying a tax rate of 16.5%.

The top individual tax rate on earned income (i.e., income from working) would be cut from 39.6% to 33% and the Alternative Minimum Tax, whose purpose is to ensure that high income households pay at least some taxes, would be eliminated. In addition to cutting income taxes, Ryan’s plan would eliminate the estate and gift taxes, thereby cutting taxes on the transfer of wealth and facilitating the perpetuation of the tremendous wealth inequality in the US. [2]

If instead of Ryan’s plan, the $3 trillion 10-year tax cut were simply split evenly across all households, every household – rich, middle class, or poor – would get $1,810 per year. Given the tremendous inequality of income and the economic insecurity of the middle and working class, I don’t think it’s fair to give everyone the same amount of money. Some need more income much more than others. But it’s much fairer than what Ryan and the Republicans have proposed to-date!

The rationale that we’re likely to hear for these tax cuts is that they will stimulate economic growth. However, real-life experience has shown that this is not true. Presidents Reagan and George W. Bush cut taxes for the rich and the economy did NOT boom. President Clinton, on the other hand, increased taxes on the rich and economic growth accelerated. So, don’t believe the false argument that tax cuts for the rich will improve the economy. The only rationale that I can think of for these tax cuts that makes any sense is that our policy makers want to give big tax cuts to their big campaign donors.

[1]      Blair, H., 1/13/17, “Republicans’ opening bid for tax reform is egregiously tilted to the rich,” Economic Policy Institute (http://www.epi.org/publication/republicans-opening-bid-for-tax-reform-is-egregiously-tilted-to-the-rich/)

[2]      Nunns, J., Burman, L., Page, B., Rohaly, J., & Rosenberg, J., 9/16/16, “An analysis of the House GOP tax plan,” Tax Policy Center of the Urban  Institute and the Brookings Institution (http://www.taxpolicycenter.org/publications/analysis-house-gop-tax-plan/full)

CORPORATE BEHAVIOR DRIVES INEQUALITY

Several corporate practices, particularly those of large, multi-national corporations, are major contributors to income and wealth inequality. One is their avoidance of taxes, which means other taxpayers must make up the difference. Another is their employee compensation practices.

The huge and growing differential between the compensation for corporate executives and workers needs to be reduced. Increasing the minimum wage is one step. However, taxing or limiting compensation for executives should also occur.

Wall Street gave out $24 billion in bonuses last year to 177,000 workers who got an average of $138,200 each. The average Wall Street bonus has increased 900% since 1985, while the minimum wage has increased a little over 100%. This $24 billion in bonuses for 177,000 workers is over one and a half times the total pay for the year for all 1,000,000 (1 million), full-time, minimum wage workers. [1]

This excessive Wall Street compensation not only contributes to overall inequality, it contributes to gender and racial income disparities. Roughly 85% of Wall Street executives and senior managers are white and over two-thirds are male. By contrast, 56% of minimum wage workers are non-white and almost two-thirds of them are female.

Huge Wall Street bonuses and “performance pay” provide incentives to Wall Street to engage in the kind of high risk, high return financial strategies that led to the 2008 financial collapse. The Dodd-Frank financial reform law called for regulation of these bonuses but these regulations have been blocked and delayed. Furthermore, the 20 largest US banks gave out over $2 billion in so-called performance pay to their top executives between 2012 and 2015. Not only do these huge amounts provide incentives for risky behavior, they are also tax deductible for the corporations, saving them $725 million in taxes.

A recent study of corporate taxes showed that many large, profitable corporations frequently pay no federal taxes. The analysis found that 258 large corporations that were consistently profitable from 2008 to 2015 and had $3.8 trillion in profits rarely paid the 35% tax rate that they, President Trump, and Republicans in Congress say needs to be cut. On average, the study found they paid only 21% of their profits in taxes – a lower rate than many individuals pay on their incomes.

In fact, 18 of these large, consistently profitable corporations paid no federal tax over the study’s 8-year period. And 100 of them paid no taxes in at least one year of the 2008 and 2015 period studied, despite reporting a profit. They did this by using tax loopholes and avoidance strategies such as shifting profits to overseas entities, depreciating assets very quickly, deducting the cost of huge stock options given to executives, and using special industry-specific tax breaks they’ve gotten slipped into our tax laws.

These tax breaks are highly concentrated with most of them going to a few, very large, multi-national corporations. Just 25 corporations received over half of the tax subsidies of all 258 corporations in the study. The study reported that the corporations with the biggest tax subsidies over the 8-year period were AT&T ($38 billion), Wells Fargo ($31 billion), JPMorganChase ($22 billion), and Verizon ($21 billion). [2]

The study refutes the argument that the US’s corporate tax rate is higher than that of foreign countries and that it makes the US an unfavorable location for doing business. The tax rates paid over the 8-year period by certain industries were quite low: gas and electric utilities – 3%, industrial machinery – 11%, telecommunications – 12%, oil, gas, and pipelines – 12%, and Internet services and retailing – 16%. The industry-specific tax breaks that lead to these low tax rates are unfair and unnecessary.

The study’s report recommends five changes to US tax laws to remedy these problems:

  • Repeal the tax exemption for overseas profits,
  • Limit the deduction for the phantom costs of executive stock options,
  • Eliminate tax provisions that allow for rapid, let alone immediate, depreciation of assets,
  • Reinstate a strong corporate Alternative Minimum Tax, and
  • Increase transparency by requiring full, country-by-country disclosure of corporate financial information. [3]

I urge you to contact your members of Congress and ask them to support these changes to our tax laws so that large, multi-national corporations pay their fair share of taxes. Please also ask them to support increasing the minimum wage and implementing regulations on Wall Street compensation to reduce incentives for risky behavior that could lead to another financial disaster.

[1]      Anderson, S., 3/15/17, “Off the deep end: The Wall Street bonus pool and low-wage workers,” Moyers & Company (http://billmoyers.com/story/wall-street-bonus-pool-2017/)

[2]      Cohen, P., 3/9/17, “Profitable companies, no taxes: Here’s how they did it,” The New York Times https://www.nytimes.com/2017/03/09/business/economy/corporate-tax-report.html?_r=0

[3]      Institute on Taxation and Economic Policy, 3/9/17, “The 35 percent corporate tax myth: Corporate tax avoidance by Fortune 500 companies, 2008 to 2015” http://itep.org/itep_reports/2017/03/the-35-percent-corporate-tax-myth.php#.WM6CaYWcHIU

GOOD NEWS FROM THE 2016 ELECTIONS

Believe it or not, there was quite a bit of good news in the 2016 elections. While I imagine many of us feel that the election of Donald Trump as president was bad news for our country, the frustration that fueled his election has positive aspects.

First, the election of Trump and the surprising success of Bernie Sanders in the Democratic primary both reflect a strongly-felt, deep-seated frustration that many middle class and working people have with the downward slide in their economic security and well-being. If they have been able to maintain their standard of living over the last 35 years, it has been a struggle. Often, they have had to work more hours at the same or lower pay. Many have lost jobs that moved overseas or to lower wage areas within the US. Some have had their pay or benefits cut due to overseas competition or the decline of collective bargaining through unions. Meanwhile, they have watched the income and wealth of the economic and corporate elite skyrocket.

Small businesses have struggled while giant, multi-national corporations have been bailed out and given huge tax breaks and other subsidies. Our elections and political system have produced policies that favor big corporations, while small business people struggle, just like others in the middle and working class.

Voters did not give any sort of mandate to Trump and the Republicans to enact their policy priorities. As you probably know, 3 million more people voted for Clinton than for Trump. In US Senate races, Republicans won only 46% of the popular vote – but got 52% of the seats. In the House, the Republicans won only 51% of the vote – but got 55% of the seats. [1]

Only 53% of eligible voters actually voted. This means that barely one out of four eligible voters voted for Trump and the Republicans. And the only reason Republicans won the presidency (courtesy of the Electoral College) and a majority in the US Senate is because of the disproportionate power given to small states in those bodies.

Republicans won a significant majority of US House seats only because of the gerrymandering of House districts (i.e., the drawing of district lines to gain partisan advantage). Due to this gerrymandering, it is estimated the Democrats would need to receive about 10 million more votes nationwide than Republicans (i.e., almost 55% of the vote) in House races to gain a narrow majority of the seats. [2]

Not only don’t Trump and the Republicans have any mandate, but many election results were in direct contradiction to their brand of conservatism and their policy positions. Three very progressive women of color were newly elected to the US Senate: Tammy Duckworth in IL, Kamala Harris in CA, and Catherine Cortez Masto in NV. Two very progressive women of color were newly elected to the US House: Pramila Jayapal in WA and Stephanie Murphy in FL.

In Oregon, Kate Brown, was elected Governor as a candidate of the Working Families Party. In AZ, ultra-right wing sheriff Arpaio was defeated by a Democrat. In MN, a Somali-American woman, Ihlan Omar, was elected to the legislature. And in TX four Latinos gained seats in the legislature. [3]

Important progressive policies were enacted by voters through ballot initiatives. All four states (AZ, CO, ME, and WA) that had minimum wage increases on the ballot passed them. Overall, the minimum wage will increase in 19 states on January 1st. This will increase wages for 4.3 million workers, providing them with over $4 billion of increased income over the course of the year. Millions of additional workers who earn just above the new minimum wage levels will also likely receive pay increases. The well-being of all these workers and their families will improve. [4] Income inequality will be reduced and all workers and the middle class will benefit.

AZ and WA also passed laws requiring paid sick time, while SD rejected a decrease in the minimum wage for teenagers and VA rejected an anti-union initiative.

CA and WA passed initiatives calling for overturning the Supreme Court’s Citizens United decision (which allows unlimited spending by the wealthy in campaigns). MO and SD passed new laws regulating campaign spending. SD also passed an innovative $100 annual Democracy Credit for each voter to encourage small donors to participate in funding campaigns. Voters approved citizen-funded elections in Berkeley, CA, and Howard County, MD. They approved automatic voter registration in AK with a strong 64% vote in favor, while four other states enacted automatic voter registration through their state legislatures in 2016.

Maine voted for “ranked choice voting” which allows voters to indicate their first, second, third, etc. choices on the ballot. If your first choice is out of the running, then your second choice is counted, and so forth. Therefore, you can vote for the candidate you truly believe is best, without worrying that you might be aiding the election of a candidate you really don’t like. (For example, you could have voted for Ralph Nader for President in 2000 with Al Gore as your second choice, without worrying that your vote for Nader would help George W. Bush get elected.)

In CA, MA, ME, and OR progressive values prevailed in education reform ballot initiatives. CA and OK passed significant criminal justice reforms. [5] CA, NV, and WA strengthened laws designed to reduce gun violence, while RI and SD strengthened ethics laws for elected officials. [6]

These are only a few examples of the many successes in state and local elections on ballot initiatives, as well as on the election of candidates that will stand up for middle class and working people.

The support for candidates and policies that bolster the middle class and working people is broad and deep in the US. We all need to work together to ensure that the Republican Congress and President Trump work to improve the well-being of the 99% of people in this country who aren’t wealthy. We must be vigilant to ensure that the policies they enact aren’t for the benefit of the 1%, don’t exacerbate income and wealth inequality, and don’t continue the crony capitalism that benefits our giant, multinational corporations and their senior executives at the expense of small businesses and workers.

[1]      Singer, P., 11/10/16, “Democrats won popular vote in the Senate, too,” USA Today (http://www.usatoday.com/story/news/politics/onpolitics/2016/11/10/democrats-won-popular-vote-senate-too/93598998/)

[2]      Richie, R., 11/7/14, “Republicans got only 52 percent of the vote in House races,” The Nation (https://www.thenation.com/article/republicans-only-got-52-percent-vote-house-races/)

[3]      Hightower, J., 12/8/16, “We can beat back the reign of Trump – if we unite in a movement for populist justice,” The Hightower Lowdown (https://hightowerlowdown.org/article/beat-trump-with-populist-justice/)

[4]      Jones, J., 1/3817, “The new year brings higher wages for 4.3 million workers across the country,” Economic Policy Institute (http://www.epi.org/blog/the-new-year-brings-higher-wages-for-4-3-million-workers-across-the-country/?mc_cid=d213e59597&mc_eid=2442dd3ea2)

[5]      Hightower, J., 12/8/16, see above

[6]      Politico, 12/13/16, “2016 ballot measures election results,” (http://www.politico.com/2016-election/results/map/ballot-measures)

COUNTERACTING THE LOW-WAGE BUSINESS MODEL OF PARASITIC CORPORATIONS

The low-wage business model of Walmart and McDonald’s, for example, is a choice, both of corporations and of our policy makers. In the restaurant industry, there are restaurants in Seattle and San Francisco that are paying their servers $13 per hour and are doing fine. Costco successfully competes with Walmart and In-N-Out-Burger with McDonald’s even though the former eschew the low-wage business model of their competitor. [1]

Economists have a label for the behavior of corporations that rely on a low-wage business model where employees need public assistance to survive: it’s called “free riding.” It’s a free ride for the employer, as public assistance programs are subsidizing their payrolls. It’s anything but a free ride for taxpayers and the workers.

In the fast food industry, over half of employees are enrolled in at least one public assistance program. The estimated cost to taxpayers is $76 billion per year. Ironically, the taxes paid by high-wage businesses and their employees, including those competing with the likes of McDonald’s and Walmart, help to pay for the public benefits that subsidize the low wages of these parasitic corporations. Until recently, McDonald’s actually assisted its employees in signing up for public benefits – to the tune of $1.2 billion per year. Walmart employees are estimated to receive $6 billion per year in public assistance. By the way, in 2015 McDonald’s profit was $4.53 billion and Walmart’s was $130.2 billion.

Economic theory states that workers get paid what they are worth. Clearly, this is an over simplification given the variations in pay that exist among employers within an industry, such as within the fast food or restaurant industries. It is more accurate to say that workers get paid what they negotiate, and that some employers are friendlier negotiators than others. At the top end of the pay spectrum, some CEOs negotiate to get paid far more than they’re worth, while many ordinary workers get paid far less than they are worth because they don’t have the power to negotiate better pay.

The U.S. labor market has a dramatic imbalance of power. Unless a worker is a member of a union, he or she has little or no power to negotiate with an employer. The rate of union membership has fallen from roughly 1 in 3 private sector workers in 1979 to only about 1 in 10 workers today. Unions negotiate higher wages and benefits for union members and also, indirectly, for nonunion workers. This occurs for several reasons: union contracts set wage standards across whole industries and strong unions prompt employers to keep wages high in order to reduce turnover and discourage unionizing at non-union employers. The decline in union membership has resulted in reduced wages for both union and nonunion workers. It is estimated that this decline is costing non-union workers $133 billion a year in lost wages. [2]

Individual workers lack bargaining power because there are relatively few employers and job openings but lots of workers looking for a job. Furthermore, a worker has an immediate need for income to pay for food and shelter, while most employers can leave a job unfilled for a while without suffering any great hardship. They can take the time to search for someone willing to take the job at whatever pay they offer.

Since 1980, employers have aggressively exploited this imbalance of power, while our federal government has stood aside and, in many ways, supported them in doing so. As a result, $1 trillion per year that used to go to workers now goes to executives and profits. Workers’ rewards for their contributions to our economic output (gross domestic product [GDP]) has dropped from 50% of GDP to 43%.

There is truth to the argument that in very competitive, price-sensitive industries producers have to squeeze workers’ wages to remain in business. However, this is where the role of government and public policy is critical. If every producer in the industry is required to pay a minimum wage, then a floor is set and all producers are on a level playing field, but with workers getting better pay. Without a good minimum wage, the competition drives wages down to the point where workers are suffering and public subsidies are required.

Public policies and laws, as well as collective action (such as unions negotiating on workers’ behalf), regulate the marketplace and affect the balance of power among competing economic interests. A market economy cannot operate effectively without the rules put in place by policies and laws. They are not antithetical to capitalism; rather, they are essential for markets to function.

Rules are necessary to prevent cheating, such as regulation of weights and measures of goods sold, and to protect the health and safety of consumers and workers. Laws and court systems enforce contracts between parties for the exchange of goods and services for money. Rules are needed to prevent companies from gaining an unfair advantage by being a free rider or externalizing costs (i.e., shifting the costs to others such as by polluting public air and water or by paying such low wages that employees need taxpayer-funded support).

Our low-wage, parasite economy is a collective choice, made by corporations but allowed and abetted – and subsidized – by public polices enacted by elected officials. We, as voters, can change this by electing representatives who support:

  • Increasing the minimum wage,
  • Enforcing and strengthening laws that allow workers to bargain collectively through unions, and
  • Stopping the free riding and externalizing of costs by large, profitable corporations.

Increasing the minimum wage and strengthening unions are two key policies that would strengthen our economy and the middle class by reducing the prevalence of the low-wage business model of parasitic corporations. I encourage you to ask candidates where they stand on these issues and to vote for ones who support fair wages and bargaining power for workers.

[1]       Hanauer, N., Summer 2016, “Confronting the parasite economy,” The American Prospect

[2]       Rosenfeld, J., Denice, P., & Laird, J., 8/30/16, “Union decline lowers wages for nonunion workers,” Economic Policy Institute (http://www.epi.org/publication/union-decline-lowers-wages-of-nonunion-workers-the-overlooked-reason-why-wages-are-stuck-and-inequality-is-growing/)

LOW-WAGE BUSINESS MODEL CREATES PARASITE ECONOMY

The term the parasite economy is being applied to employers whose business model is built on low-wage jobs. These corporations take more out of their employees and society than they put in, hence they are parasites. The low incomes of their workers mean that the workers can only survive with the support of the publicly-funded safety net, including subsidized food, housing, child care, and health insurance, as well as the Earned Income Tax Credit. [1] And to make matters worse, some of these corporations are ones that use loopholes in the tax code to avoid paying their fair share of taxes.

As Henry Ford realized 100 years ago, if you don’t pay your workers enough to buy the products you make, your business model will struggle to be sustainable. In 1914, Ford began paying his employees $5.00 a day, over twice the average wage in the auto industry. He also reduced the work day from 9 hours to 8 hours. Ford believed he would get higher quality work and less turnover as a result. He stated, “The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.” [2]

As Henry Ford acknowledged in the early 1900s, the U.S. economy is driven by consumers. About two-thirds of our economic activity today is consumer spending. However, low-wage workers have a very limited ability to purchase goods and services, either to support themselves and their families or to sustain our consumer economy. A strong middle class is essential for the vitality for our consumer economy.

Although some of our politicians deride those who use public assistance as “takers” (as contrasted with “makers”), the real “takers” in our economy and society are the low-wage paying corporations. These low-wage employers are subsidized by the tax dollars that pay for the public assistance programs their low-paid workers (and their families) rely on to survive. [3] This is corporate welfare and these corporations are truly “takers,” as opposed to “makers” who contribute to our economy and society. [4]

Low-wage corporations are parasites, making nice profits and typically paying high compensation to their executives while relying for their success on low pay and public subsidies for their workers. Walmart and McDonald’s are classic examples.

It is estimated that American taxpayers pay roughly $153 billion a year for public assistance programs that support low-wage workers and their families. Seventy-three percent or almost three out of every four people who use public assistance programs live in families where at least one person is working. Forty-eight percent of home care workers rely on public assistance, along with 46% of those providing child care and 25% of part-time college faculty. [5]

A large part of the restaurant industry is a classic example of the parasite economy. The industry association, the National Restaurant Association, is a leading advocate for the low wages of the parasite economy. It has lobbied hard and is actively engaged in election campaigns in its efforts to keep industry wages low by opposing increases in the minimum wage and supporting the existence of an even lower, special minimum wage for tipped workers. The federal minimum wage for tipped workers – most restaurant employees – is $2.13 per hour and hasn’t been changed since 1991. The median wage for restaurant servers including tips is just $9.25 per hour. As a result, restaurant servers are three times as likely to be in poverty as the average worker.

The effects of moving to a low-wage business model were seen in the 2009 outsourcing of hotel housekeeping by Hyatt Hotels in the Boston area. Ninety-eight housekeepers were fired and replaced by contracted temp workers at half the pay, with no benefits, and with almost twice the workload. The fired housekeepers, some of whom had worked for Hyatt for 25 years, had had average pay of $17 per hour with good benefits. They were financially stable and appeared secure – able to pay their bills, support their children including with college costs, and help aging parents. Today, seven years later, the effects are still being felt by some of them, who have depleted their savings, defaulted on loans, and have poor credit ratings. Some have experienced high levels of stress and health consequences. Taxpayers had to provide unemployment benefits, as well as food, housing, and health care subsidies. [6]

The low-wage business model is pervasive in the U.S. today. Seventy-three million Americans (nearly a quarter of our population) live in working poor households that are eligible for the Earned Income Tax Credit (EITC). This public program, the primary replacement for “welfare as we know it” that President Clinton ended in 1996, provides subsidies to workers who are paid so poorly they and their families cannot survive without public assistance. The federal government spent $57 billion on EITC benefits in 2014 and many states provided their own additional EITC benefits (roughly another $10 billion). Most of these workers – and you have to be working to qualify for this benefit – work for large, profitable corporations.

Between 2003 and 2013, wages (after adjusting for inflation) actually fell for the 70% of workers at the lower end of the U.S. income spectrum. Further contributing to the need for public assistance, fewer and fewer Americans have health insurance through their employers. As a result, working-poor families (as opposed to the unemployed) receive more than half of all federal and state public assistance. Beyond the EITC, public subsidies that go primarily to the working poor include ones for food and nutrition ($86 billion), child care ($71 billion), housing ($38 billion), and health insurance ($475 billion).

My next post will discuss why the parasite economy is so prevalent in the U.S. today and what we can and should do about it.

[1]       Hanauer, N., Summer 2016, “Confronting the parasite economy,” The American Prospect

[2]       Nilsson, J., 1/3/14, “Why did Henry Ford double his minimum wage?” The Saturday Evening Post (http://www.saturdayeveningpost.com/2014/01/03/history/post-perspective/ford-doubles-minimum-wage.html)

[3]       Hanauer, N., Summer 2016, see above

[4]       Johnson, J., 5/3/16, “McDonald’s, the corporate welfare moocher,” Common Dreams (http://www.commondreams.org/views/2016/05/03/mcdonalds-corporate-welfare-moocher)

[5]       Jacobs, K., 4/15/16, “Americans are spending $153 billion a year to subsidize low-wage workers,” The Washington Post (https://www.washingtonpost.com/posteverything/wp/2015/04/15/we-are-spending-153-billion-a-year-to-subsidize-mcdonalds-and-walmarts-low-wage-workers/?utm_term=.7120f83f959f)

[6]       Boguslaw, J., & Trotter Davis, M., 9/5/16, “Lessons from the Hyatt 100,” The Boston Globe

FIXING ECONOMIC AND POLITICAL INEQUALITY

Since President Teddy Roosevelt took on the mantle of trust buster at the turn of the 20th century, government regulation through anti-trust laws and other regulatory mechanisms has been recognized as the only way to counterbalance corporate power and individual wealth.

However, since the 1980s, the corporate and financial elite of the country has increasingly exercised influence and control over our federal and state governments and their policy making and regulatory functions. This has undermined government as the counterbalance to the power of the elite. The tools they use to gain influence and control are campaign contributions and spending, lobbying, and the revolving door.

As a result of their economic and political power, the rules of our economy have been shifted to favor wealthy corporations and individuals. This has undermined the middle class and led to growing inequality in incomes, wealth, and opportunity. [1] (See my post Economic Inequality is Due to Shifts in Political and Marketplace Power for more detail.)

A return to the policies of the 1950s and 1960s would go a long way toward stopping runaway inequality and beginning to rebuild the middle class. A return to these policies is clearly not radical, although some may argue that it would be based on the current landscape of politics and power. Key elements of the post-World War II policies that led to broadly beneficial economic growth and decreasing inequality were:

  • A truly progressive tax system;
  • Workers with bargaining power, primarily through unions, who were better able to balance the power and interests of employers;
  • Financial regulation that prevented speculation, manipulation, and international or offshore transactions that hurt or destabilized our economy; and
  • Fair corporate and estate taxes that required payment of a reasonable share of taxes by these entities.

In addition, we need to create new policies to address newly emergent factors that have shifted power in our economy and politics:

  • Full disclosure and stricter regulation of campaign contributions and spending;
  • Trade agreements that actually benefit US workers and our economy; and
  • Strict regulation and disclosure of lobbying and the movement of personnel through the revolving door between private sector jobs and government positions.

Institution of these seven policies would enhance economic equality and bolster the middle class. They would also reverse growing political inequality that is undermining our democracy. This would shift power away from wealthy individuals and corporations and back to average Americans.

I encourage you to contact your representatives in Congress and/or in your state government to let them know what you think needs to be done to address the economic and political inequality in the U.S. today.

[1]       Kuttner, R., 1/14/16, “The new inequality debate,” The American Prospect (http://prospect.org/article/new-inequality-debate-0)

THE YEAR-END TAX BILL: A BIG WIN FOR CORPORATIONS AND A LITTLE WIN FOR WORKING AMERICANS

Because of the gridlock in Congress, so few bills pass that those that have to pass get laden with special interest provisions and riders like ornaments on a Christmas tree. The recent year-end spending bill (2,009 pages long) and tax legislation (233 pages long) are the latest two examples. There were literally thousands of riders attached to these two massive and complicated bills. Many special interest provisions are slipped in by powerful legislators, typically on behalf of corporate lobbyists, when there is little time for other legislators (let alone the public) to scrutinize them. Nonetheless, these provisions can produce significant, windfall benefits for the targeted beneficiaries. Not surprisingly, the executives of the corporations that stand to reap the benefits are often large campaign contributors. [1]

The tax legislation Congress passed on December 18 was a $686 billion 10-year package. In it, Congress made permanent two recent expansions of tax credits that support low-income, working families: the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Over the next 10 years, this will put $118 billion in the pockets of low-income working Americans. This will keep 16 million people from falling into poverty or deeper into poverty and it will help the economy by putting money in the pockets of people who will spend it at local businesses.

Congress also renewed the American Opportunity Tax Credit. It provides a tax credit of up to $2,500 per year for the costs of college. This will give a helping hand to millions of families struggling with the costs of higher education.

Overall, nearly 40% of the tax breaks in this legislation – approximately $250 billion – benefit working Americans who are overwhelmingly low- and middle-income. Typically, when the year-end tax cut package is passed low- and middle-income Americans have gotten just 20% of the tax breaks. So this year, with advocacy by many progressive leaders and activists, the benefits for working families were double what they usually are. [2]

This is the difference that political activism can make. Thank you to all of you who contributed your time, efforts, and voices to this fight.

Nonetheless, corporations got more than $400 billion in tax breaks. For example, heavy lobbying by Wall Street financial institutions made permanent a supposedly temporary, major tax loophole that makes it easier to stash profits offshore and avoid taxation here at home. This $78 billion (over 10 years) tax loophole has helped General Electric go five straight years without paying any federal income tax, and instead getting billions in refunds. Another offshore tax loophole was extended for five years at a cost of $8 billion. A special tax provision on the depreciation of equipment, intended as a temporary measure to fight the 2008 recession, was extended for another six years costing $28 billion in lost corporate tax revenue. Corporate lobbyists helped draft the language of at least some of these tax giveaways.

The hypocrisy of the supposed deficit fighters in Congress was on full display. None of the $400 billion in corporate tax breaks was paid for; their cost was simply added to deficit. Not one loophole was closed or tax subsidy eliminated to pay for this largesse. Yet when a provision to extend benefits for 9/11 first responders came up, the supposed deficit hawks insisted that it had to be paid for with spending cuts and new revenue!

My next post will cover highlights of the year-end spending bill.

[1]       Moyers, B., 12/22/15, “The Plutocrats Are Winning. Don’t Let Them!” Common Dreams (http://www.commondreams.org/views/2015/12/22/plutocrats-are-winning-dont-let-them)

[2]       Clemente, F., 12/22/15, “Families Advance With Recent Tax Bill, But Corporations Got a Lot More,” The Huffington Post (http://www.huffingtonpost.com/frank-clemente/families-advance-with-rec_b_8861986.html)

PRESIDENTIAL CANDIDATE SANDERS ON DEMOCRATIC SOCIALISM

Democratic presidential candidate Bernie Sanders recently gave a speech focused on defining what he means by democratic socialism and why he has identified as a socialist for his entire political career. Our mainstream corporate media can’t seem to cover him or his campaign without labeling him a socialist. The intent seems to be to identify him as outside the mainstream at best or as a dangerous radical. Often the implicit or explicit message is that a socialist is one step away from being a communist – and many Americans do not know what socialism or communism means or the difference between them.

To address this pejorative use of the term socialist, Sanders began by noting that many of the programs and policies that President Franklin Delano Roosevelt (FDR) instituted in the 1930s in response to the Great Depression were called socialist: Social Security for seniors, the minimum wage, unemployment insurance, the 40 hour work week, an end to child labor, collective bargaining for workers, job programs to reduce unemployment, and banking regulations. They were enacted despite the strong opposition of the economic elites and have become part of the fabric of our society and the foundation of the American middle class.

Similarly, when President Johnson provided health insurance through Medicare for seniors and Medicaid for poor children and families, these programs were called socialist and a threat to the American way of life.

Sanders stated that we need to transform our democracy and our country as FDR did in the 1930s. We are facing a political and economic crisis that requires dramatic change. He noted that the US is the wealthiest nation in the history of the world and yet we have high rates of poverty that include over one-quarter of our children. He called for a political movement to take on the ruling, economic elite class, whose greed is destroying our democracy and our economy.

Sanders cited FDR’s inaugural address in 1944 as one of the most important speeches in our nation’s history. In it, FDR proposed an economic bill of rights, noting that true individual freedom cannot exist without economic security. Sanders pointed to this economic bill of rights as reflecting the core of what democratic socialism means to him. It includes:

  • Decent jobs at decent pay with time off and the ability to retire with dignity;
  • The ability to have food, clothing, a home, and health care; and
  • The opportunity for small businesses to operate without domination by large corporations.

Sanders noted that Martin Luther King, in 1968, echoed FDR’s call for economic rights and stated that the US provides “socialism for the rich and rugged individualism for the poor.”

Sanders went on to present specific examples of what democratic socialism means to him. He stated that the principle of economic rights for all is not a radical concept and that many countries around the world have done a far better job of providing economic security for their citizens than the US has done. In particular, he noted that almost all countries provide 3 months of paid family leave for new mothers and that all major countries provide health care as a right, not a privilege. The US does neither of these. He addressed climate change, racism, and economic and social justice issues including a fairer tax system and an end to excessive incarceration. He called for a more vibrant democracy with higher voter participation and the removal of barriers to voting.

You can listen to Sanders’ speech at https://www.youtube.com/watch?v=slkQohGDQCI. It’s an hour and 36 minutes long. You can listen to it while you’re doing something else or, if you want to listen to the highlights, listen to minutes 4 – 9 and from minute 24 for 5 – 10 minutes.

WORKING HARD, GAINING LITTLE

FULL POST: We recently celebrated the Labor Day holiday and workers in the US do have some things to celebrate, but in general the outlook is bleak. First, the bad news, and then in my next post the good news.

Wages (adjusted for inflation) fell 4% between 2009 (when the recovery officially started) and 2014. The fall was the greatest for low income workers – even in industries where hiring was strong – such as restaurant cooks (down 8.9%), home health aides (down 6.2%), and retail workers. Many workers are worse off than they were 20 years ago. [1]

Hourly wages for the typical worker have been basically stagnant since 1970, despite significant increases in worker productivity. From 2000 to 2014, for example, productivity grew by 21.6% while hourly compensation grew by just 1.8%. The value of the increased productivity has primarily gone to highly paid managers, business owners, and shareholders. Workers are not getting the fruits of their increased productivity because the rules of our economy have changed over the last 40 years to the benefit of employers. Workers’ power, through collective bargaining and other means, has been intentionally eroded by policy decisions by federal and state governments at the behest of powerful corporations. [2]

An important factor in these stagnant and falling wages is the growth of the number of workers who are not full-time employees; those who are temporary, part-time, or contract workers. This reflects the growth of what is called the gig economy. Roughly 40% of US workers were contingent or gig workers in 2010, up from 35% in 2006. [3] Roughly 27 million Americans are working as independent contractors or temporary workers, while another 24 million work at a mix of traditional and freelance work. These workers not only suffer from low wages, they also typically do not receive benefits and are not protected by labor laws covering health, safety, and working conditions, such as minimum wage and overtime pay laws. Furthermore, much of the safety net for workers in the US depends on being a regular, full-time employee: health insurance, retirement benefits, unemployment insurance, and workers’ compensation and disability insurance (for being unable to work due to an injury or a health issue). [4]

Our current employee-focused policies provide perverse incentives for employers because costs and administrative burdens are lower with non-employees than employees. As a result, employers actively work to maximize the use of contingent workers and minimize the number of full-time employees. They also misclassify workers as contractors to avoid paying payroll and unemployment taxes.

The gig economy means less economic security for workers now and in the future. Their jobs can disappear at any moment with no unemployment benefits to tide them over to the next job. Their weekly hours and income fluctuate. And typically they have no retirement benefits and no health insurance. If they buy health insurance on their own, they may have caps and high deductibles that could leave them in a financial crisis if a serious accident or illness were to occur. The risk of economic changes and recessions now falls primarily on employees, with little support from employers or our public safety net.

My next post will review good news for workers, including policy changes that would recapture workers’ bargaining power and better serve workers in the gig economy.

[1]       Schwartz, N.D., 9/3/15, “Pay has fallen for many, study says,” The Boston Globe from The New York Times

[2]       Economic Policy Institute, 9/2/15, “Gap between productivity and typical workers’ pay continues to widen,” Economic Policy Institute (http://www.epi.org/press/gap-between-productivity-and-typical-workers-pay-continues-to-widen/)

[3]       Johnston, K., 9/6/15, “Work’s dark future,” The Boston Globe

[4]       Ramos, D., 9/6/15, “The sharing revolution and the uncertain future of work,” The Boston Globe

WHY ECONOMIC INEQUALITY IS A PROBLEM Part 3

The lack of equal opportunity and upward mobility when there are high levels of economic inequality is most dramatically clear when looking at children. Children born and raised in low income families are more likely to have:

  • health problems at birth,
  • worse living conditions including toxins in their environment (e.g., lead and air pollution),
  • worse nutrition, and
  • less nurturing and stimulating care from parents and non-parental caregivers.

Therefore, the opportunity for children in low income households to achieve their full potential – the foundation of equal opportunity and mobility – is compromised literally from day one. Growing up in an environment that is likely at times to be unhealthy and stressful can do long-term harm to a young child’s developing brain and, therefore, to his or her chances for success in school and in life. [1]

The relationship between a child’s family’s income during childhood and his or her life outcomes is well-established. Decades of research have established that a child’s family’s socioeconomic status is the strongest predictor of a child’s success in school and in life.

Without a very robust safety net and system of supports for low income families – which conservatives oppose both philosophically and fiscally – high levels of income and wealth inequality leave lower income children behind from birth (and probably even pre-natally).

Children from families with lower incomes and wealth also receive much less financial support from parents, both during parents’ lifetimes and through inheritance. Many parents who have the means provide financial assistance to their children to further their education, to buy a home or a car, to start a business, or to weather a health or job-related setback. The ability to support children’s opportunities and upward mobility is inherently lower for families with less income and wealth than it is for well-off families.

The lack of opportunity and upward social mobility for those with middle class and lower incomes, not to mention those in poverty, is not a separate problem from the inequality of income and wealth, but part and parcel of it. For example, children who graduate from college but are from the 20% of families with the lowest incomes are two and a half times less likely to be in the top 20% of income earners as adults than children from wealthy families who did not even graduate from college. [2]

If we and our democracy are committed to equal opportunity and social mobility, we must address economic inequality. Public policies created the Great Prosperity of the post-World War II economy. Back then everyone shared in the benefits of economic growth, and income and wealth gaps shrank. The public policies of the last 40 years have undermined the middle class and fostered the growing economic inequality that now rivals that of any point in American history. Changes in public policies can reverse our economic inequality and restore the equal opportunity and social mobility that are cornerstones of our American democracy. [3]

[1]       Pollak, S., et al. (July 2015). “Association of child poverty, brain development, and academic achievement,” JAMA Pediatrics

[2]       Bernstein, J., & Spielberg, B. (6/5/15). “Inequality matters,” The Atlantic

[3]       Reich, R. (2010). “Aftershock: The next economy and America’s future,” Random House books.

WHY ECONOMIC INEQUALITY IS A PROBLEM Part 2

Economic inequality is a problem because it undermines our economy and our democracy. High levels of economic inequality make the US economy fragile, and perhaps unsustainable. Our economy is built on consumer spending, which accounts for about two-thirds of our economic activity. However, the rich don’t spend as much of their incomes as those with lower incomes do. They save more, they invest more (including in speculative investments that add no value to our economy), and they save, invest, and spend overseas, which does not support the American economy. Envision the difference between a) a large corporation’s CEO or a Wall St. hedge fund manager taking home $100 million for a year’s work and b) 2,000 middle class families taking home the same $100 million, which would be $50,000 each (perhaps in unemployment benefits or to support continued education). Which income distribution is going to result in more spending in our local economies and more support for local businesses, their employees, and their suppliers? Which income distribution is better for American workers and businesses, or in other words, for the US economy? [1]

The 90% of us who aren’t wealthy have a smaller and smaller share of the income and wealth of our society. Therefore, we simply do not have the consumer purchasing power needed to keep our economy running at full speed. Without sufficient demand for consumer products and services, businesses reduce production and lay off workers. This ripples through the whole economy as these laid-off workers don’t have money to spend in their local economies. Furthermore, related businesses feel the downturn, including the companies that build the equipment that manufacturers of consumer goods use, those that transport the goods, and those that build and furnish the buildings that house consumer businesses. As a result, unemployment (and under-employment) increase, and a vicious cycle of declining prosperity ensues.

There is also a political dimension to economic inequality. The wealthy donate money (and lots of it) to candidates for elected offices. Therefore, elected officials hear the voices of the wealthy much more loudly than they do the voices of lower income voters. As a result, policies tend to favor the wealthy, such as cutting their taxes, including the estate tax, income tax rates on high incomes, and corporate taxes (especially for large and multi-national firms). These tax cuts mean government has less revenue to spend on safety net programs and for investments in basic infrastructure such as education, mass transportation, and roads. Furthermore, many of the well-off advocate for cuts to safety net programs that support stability, if not opportunity and upward mobility, for those working in low paying jobs or facing adverse circumstances such as loss of a job or a health crisis. Therefore, economic inequality begets political inequality that begets even greater economic inequality.

Inequality and lack of social mobility are intimately linked; we can’t increase mobility and opportunity without reducing inequality. Those with low income and wealth simply are unable to make the investments in themselves, their children, and their neighborhoods that are needed to foster mobility and opportunity. In addition, unequal political power perpetuates and exacerbates economic inequality. As a result, the ability of the middle class and poor to build better lives for themselves and their children has become very limited indeed. [2]

[1]       Reich, R. (2010). “Aftershock: The next economy and America’s future,” Random House books.

[2]       Bernstein, J., & Spielberg, B. (6/5/15). “Inequality matters,” The Atlantic

WHY ECONOMIC INEQUALITY IS A PROBLEM Part 1

Some conservative commentators and politicians argue that economic inequality isn’t a problem. They claim that as long as there’s opportunity and social mobility, inequality in income and wealth doesn’t matter. They’re wrong, because high levels of economic inequality mean that social mobility is limited and opportunity is far from equal. [1]

One of the conservatives’ arguments is that economic growth provides opportunity and mobility regardless of inequality. However, almost all of the income and wealth generated by economic growth is going to the already well-off. For example, since the economic recovery began in 2009, 95% of income growth has gone to the richest 1% of the population. That doesn’t leave much opportunity or mobility for the other 99%.

There are at least five reasons that high levels of economic inequality are a problem. The first three are directly linked to social mobility and opportunity. I’ll cover those in this post. The other two reasons are that high levels of inequality undermine our economy and democracy. I’ll cover those in my next post. In a third post, I’ll focus on the effects of inequality on children.

Economic inequality is a problem because low income and wealth limit the ability to invest in a better future for oneself and for one’s children (e.g., in education or in living in better housing or a better community). They increase the likelihood of being stuck in a neighborhood that lacks opportunity (e.g., good schools and jobs) and the likelihood of living in an environment that is unhealthy and stressful (which does long-term harm to a young child’s brain development and, therefore, to his or her chances for success in school and in life). [2]

High levels of inequality produce high levels of residential segregation by economic status. Low income communities don’t have the resources to provide the public safety or good schools that high income communities can. Access to jobs and a safe, clean environment are more likely to be found in high income communities. Children growing up in neighborhoods where low income families are concentrated have worse outcomes in school and in life. The reverse is true as well: children from neighborhoods of concentrated wealth do best. The portion of families living in neighborhoods of concentrated wealth or concentrated poverty more than doubled between 1970 and 2009. The portion of families living in middle-income neighborhoods declined from 65% to 42%.

Growing economic inequality leads to growing educational inequality. While the gap in educational outcomes between blacks and whites has closed somewhat in recent years, the gap based on class (i.e., socioeconomic status) has widened. This gap is evident even before children start school: rich children score much higher on tests of school readiness than poor children do. At the other end of the educational spectrum, the high cost of college impedes access to higher education and high levels of post-college debt limit economic opportunities and mobility in adulthood. Children from lower income families are more likely to leave college with high levels of debt that limit their opportunities to save, to buy a home, to invest in further education, or to start a business. Between 1995 and 2013, the bottom half of the population economically (which includes many in the middle class) had college debt more than double relative to their incomes. Meanwhile, the top 5% of the population saw no increase in college debt relative to their incomes and had debt levels that were one-seventh of those of the bottom half.

In my next post, I’ll look at the effects of inequality on our economy and democracy.

[1]       Bernstein, J., & Spielberg, B. (6/5/15). “Inequality matters,” The Atlantic

[2]       Pollak, S., et al. (July 2015). “Association of child poverty, brain development, and academic achievement,” JAMA Pediatrics

A VOICE FOR WORKERS

Workers need to have a strong voice in the workplace and in our democracy to maintain an equitable balance of power with large, corporate employers. As the voice of labor has weakened over the last 35 years, workers’ pay has barely kept up with the cost of living and has fallen far behind workers’ growing productivity. In addition, the minimum wage has fallen substantially relative to the cost of living and workers’ benefits have been cut – many fewer workers have pensions and workers are paying more and more for their health insurance, if they have it.

Without a strong voice and bargaining power, workers do not get their fair share of economic growth and prosperity. (See my previous post, The Undermining of the Middle Class, for more detail.) For example, as workers’ pay and benefits have fallen in recent years, corporate profits and executives’ pay and benefits have risen dramatically.

The primary vehicle for providing a voice and bargaining power to workers is a labor union. Over the last 35 years, large corporations and their allies in government have engaged in a concerted campaign to weaken unions and workers’ bargaining power. Corporate employers have voided union contracts by declaring bankruptcy (e.g., many airlines), employers have been allowed to hire replacement workers when unionized workers engage in a strike (e.g., the air traffic controllers), employers have closed factories and moved jobs overseas, it has been made harder to organize workers and form a union, labor laws have been only weakly enforced, and penalties on employers who break labor laws are minimal.

This campaign to weaken unions has succeeded in reducing union membership among corporate employees from over 1 in 3 workers in the 1950s to 1 in 14 workers today. It has also undermined all workers’ bargaining power and throughout our economy has caused wages to stagnate and benefits to decline. The result has been a decline in the middle class’s share of national income.

Three key policy changes are needed to strengthen unions and the voices of workers:

  • Make it easier to form a union. Eliminate the ability of employers to delay and put up procedural hurdles to workers organizing a union.
  • Implement meaningful penalties for labor law violations. For example, the current penalty for firing a worker who is working to form a union (which is illegal), is simply to give him or her a job back, possibly with back pay. There is no fine or other penalty for having broken the law. Often these cases take so long to resolve (often it’s over a year) that the worker has had to find employment elsewhere.
  • Overturn, through federal law, states’ “right to work” laws. These laws allow employees in a unionized workplace to benefit from union-negotiated pay and benefits without having to pay union dues. This is a backdoor way to weaken and destroy unions by reducing their membership and revenue.

Wages and benefits are better in states (and countries) with higher levels of union membership. For example, in states with “right to work” laws, wages are $6,000 per year lower than in states without such laws and workers have weaker health and pension benefits as well. This applies not just to unionized workers but to all workers; all workers’ wages and benefits are better when unions are stronger.

Workers deserve fair pay and benefits for a hard day’s work. Unions provide the voice and bargaining power for workers; they establish a countervailing power to that of large, corporate employers. They improve pay and benefits, as well as working conditions, such as limiting the standard work week to 40 hours. Strong unions lead to a strong and fair economy, as well as a strong middle class. We need to strengthen labor unions to bring back a thriving middle class, as well as the fairness and shared prosperity that our economy produced in the 1950s through 1970s.

Strengthening labor unions is the seventh of Ten Ideas to Save the Economy: The Big Picture presented by Robert Reich and MoveOn.org. (You can watch the 3 minute video at: https://www.facebook.com/moveon/videos/vb.7292655492/10152780314000493/?type=1&theater.)

IMPORTANT ISSUES FOR THE 2016 PRESIDENTIAL CAMPAIGN

ABSTRACT: There’s no shortage of important issues facing the U.S. today. As candidates announce their intention to run for president, it will be interesting to see which issues they make priorities and which issues the mainstream corporate media decide to cover. Many candidates and the mainstream media are likely to avoid the issues of the struggling middle and working classes and of the growing inequality of income and wealth.

However, MoveOn.org and Robert Reich have teamed up to present 10 important issues for supporting the middle and working classes, reclaiming our democracy from moneyed interests, and saving our planet. Reich does a 3 minute video on each issue.

Senator Bernie Sanders of Vermont, a Democratic candidate for President, has a similar focus. If these issues resonate with you, I encourage you to follow Senator Sanders’ campaign. If you want these issues to be discussed in the campaign, give him some support during the primary.

FULL POST: There’s no shortage of important issues facing the U.S. today. As candidates announce their intention to run for president, it will be interesting to see which issues they make priorities. It will also be interesting to see which issues the mainstream media – the big corporate media – decide to cover. Many candidates and the mainstream media are likely to avoid the issues of the struggling middle and working classes and of the growing inequality of income and wealth. However, there are efforts to explicitly put these issues in the spotlight.

MoveOn.org and Robert Reich [1] have teamed up to present “10 Big Ideas to Save the Economy.” These are 10 important issues for supporting the middle and working classes, reclaiming our democracy from moneyed interests, and saving our planet. The corporate media and many candidates will avoid them. Therefore, MoveOn and Reich are using social media to try and bring these ten issues to voters’ attention. The issues are:

  • Enacting a $15 minimum wage
  • Supporting working families through equal pay for women, predictable work schedules, quality child care, and paid leave
  • Expanding Social Security
  • Reining in Wall Street
  • Reinventing education
  • Ending corporate welfare
  • Strengthening workers’ bargaining power through stronger unions
  • Increasing the estate tax
  • Implementing a carbon tax to cut pollution and address global warming
  • Getting big money out of politics

I’ve done blog posts on the first five and will do posts on the others soon. In the posts, I include a link to the 3 minute video that Robert Reich does to explain each one.

There’s one Democratic candidate for President, Senator Bernie Sanders of Vermont, whose campaign has a similar focus on the middle and working classes and on inequality. Although the mainstream (corporate) media tend to describe him as a fringe candidate and highlight his socialist political label, his positions on issues are very well aligned with what the voting public supports. For example, he supports: [2] [3] [4]

  • Providing universal pre-kindergarten – supported by 77% of the public
  • Reducing income and wealth inequality – supported by 63% of the public
  • Fair trade that protect workers, the environment, and jobs – supported by 75% of the public
  • Increasing taxes on the rich – supported by 52% of the public
  • Expanding Social Security – supported by 70% of the public
  • Breaking up the big banks – supported by 58% of the public
  • Making higher education more affordable – supported by 79% of the public
  • Reducing the burden of student debt – supported by 78% of the public
  • Ending tax loopholes for corporations that ship jobs overseas – supported by 74% of the public
  • Closing offshore corporate tax loopholes – supported by 70% of the public
  • Addressing climate change – supported by 71% of the public
  • Getting big money out of politics – supported by over 70% of the public across party lines

If Senator Sanders’ positions on these issues resonate with you, I encourage you to follow to his campaign. If you want these issues to be discussed in the campaign, give him some support during the primary. His campaign website is https://berniesanders.com/.

[1]       Robert Reich was President Clinton’s Secretary of Labor and MoveOn.org is the progressive, grassroots organization promoting participation in our democracy.

[2]       Moyers, B., & Winship M., 6/3/15, “Turn left on Main Street,” Moyers & Company (http://billmoyers.com/2015/06/03/turn-left-main-street/?utm_source=General+Interest&utm_campaign=512c7d35f1-Midweek12171412_17_2014&utm_medium=email&utm_term=0_4ebbe6839f-512c7d35f1-168350969)

[3]       Cole, J., 5/29/15, “Despite what corporate media tells you, Bernie Sanders’ positions are mainstream,” Common Dreams (http://www.commondreams.org/views/2015/05/29/how-mainstream-bernie-sanders)

[4]       Progressive Change Institute, Jan. 2015, “Poll of likely 2016 voters,” (https://s3.amazonaws.com/s3.boldprogressives.org/images/Big_Ideas-Polling_PDF-1.pdf)

PROVIDING ECONOMIC SECURITY FOR OUR SENIORS

ABSTRACT: We need to improve the economic security of today’s – and tomorrow’s – senior citizens. Strengthening and expanding Social Security is the third of the Ten Big Ideas to Save the Economy. Reliance on Social Security is increasing. Despite its maximum benefit of only $32,000 per year, for one-third of seniors it’s 90% of their income.

Some people are using scare tactics – claiming that Social Security is running out of money and that we have to cut benefits or raise the retirement age to preserve it. However, Social Security is not in serious financial trouble; a simple adjustment in how payments into Social Security are calculated will provide funding sufficient for the foreseeable future. There is $118,500 cap on the amount of annual income taxed to provide Social Security benefits. This is not sensible or fair. Scrap the cap and everyone alive today can look forward confidently to Social Security benefits.

Outside of Social Security, the federal government spends $68 billion every year on tax incentives for contributions to Individual Retirement Accounts (IRAs), Keoghs, 401(k)s, and other tax sheltered retirement accounts. However, almost all of these benefits end up in the pockets of the wealthiest Americans. So these supposed retirement savings incentives for the middle and working classes, which significantly reduce government revenue, are primarily just another tax avoidance scheme for the well-off.

Our country both needs to and can afford to provide Social Security to its seniors. With all the challenges the middle and working classes are facing in saving for retirement, we should be strengthening Social Security and increasing its benefits, not cutting them as some people say we should.

FULL POST: We need to improve the economic security of today’s – and tomorrow’s – senior citizens. Strengthening and expanding Social Security is the third of the Ten Big Ideas to Save the Economy presented by Robert Reich and MoveOn.org. [1] We all want to be able to maintain a reasonable standard of living in retirement. However, fewer and fewer workers have pensions from their employers. And saving for retirement is harder than ever because middle class wages have been stagnant for 40 years while living expenses keep going up. In addition, student debt has grown dramatically and most Americans lost substantial income or savings (or both) in the Great Recession of 2008.

A recent study found that more than half of all American households with someone 55 or older have no retirement savings. Among those with some retirement savings, the median amount of those savings is only about $104,000 for those 55-64 and $148,000 for those 65-74 – nowhere near enough to maintain a reasonable standard of living in retirement. [2]

Therefore, reliance on Social Security is increasing. Despite its maximum benefit of only $32,000 per year, for two-thirds of seniors, Social Security represents half of their income; for one-third of seniors, it’s 90% of their income. Nearly half of seniors would be living in poverty if they weren’t receiving Social Security. So Social Security benefits should not be cut; they should be increased.

Some people are using scare tactics – claiming that Social Security is running out of money and that we have to cut benefits or raise the retirement age to preserve it. However, Social Security is not in serious financial trouble; a simple adjustment in how payments into Social Security are calculated will provide funding sufficient for the foreseeable future. Right now, we pay into Social Security on up to $118,500 of annual income; nothing is paid into Social Security on income over that amount. Therefore, a CEO or hedge fund manager making $10 million or more in a year pays the same amount into Social Security as someone who makes $118,500. If this cap on the income taxed for Social Security were lifted, and everyone paid the same rate on all their income (as we do for Medicaid), Social Security would have plenty of money to pay its promised benefits – and more.

The $118,500 cap on the amount of income taxed for Social Security is not sensible or fair. Scrap the cap and everyone alive today can look forward confidently to Social Security benefits when they are senior citizens.

Some people go so far as to say we can’t afford Social Security. However, they conveniently ignore the fact that the federal government spends $68 billion every year on tax incentives for contributions to Individual Retirement Accounts (IRAs), Keoghs, 401(k)s, and other tax sheltered retirement accounts. Although these policies are presented as promoting retirement savings for average Americans, the way these tax breaks are designed results in almost all of these benefits ending up in the pockets of the wealthiest Americans. These wealthy individuals would be saving anyway, so rather than functioning as effective retirement savings incentives, these tax breaks are largely giveaways to the already well-off. [3] The maximum amounts that can be contributed to these accounts are something only the well-off can afford to take advantage of. For example, the maximum contribution one can make to a 401(k) or 403(b) plan is $18,000 per year or $24,000 if one is over 50. (For the sake of comparison, the median annual household income in the US is $52,000.) The huge amounts of money that can be accumulated in these accounts are far more than are needed to maintain a reasonable standard of living in retirement. The result is that these supposed retirement savings incentives for the middle and working classes, which significantly reduce government revenue, are primarily just another tax avoidance scheme for the well-off.

Our country both needs to and can afford to provide Social Security to its seniors. With all the challenges the middle and working classes are facing in saving for retirement, we should be strengthening Social Security and increasing its benefits, not cutting them as some people say we should.

[1]       You can watch the 3 minute video at: http://civic.moveon.org/expandsocialsecurity/share.html?id=116037-5637721-y4jZ7Rxn.

[2]       U.S. Government Accountability Office. 5/12/15. “Most Households Approaching Retirement Have Low Savings,” GAO-15-419: http://www.gao.gov/products/GAO-15-419

[3]       Ghilarducci, T., Spring 2015, “Senior class: America’s unequal retirement,” The American Prospect

BIG IDEAS TO HELP WORKING PARENTS

ABSTRACT: Working parents in the U.S. are struggling both to make ends meet and to be good parents. They need to be paid a reasonable wage so that full-time work provides a decent standard of living for their families (as it used to). Furthermore, employers and government should work together to ensure that workplaces are family-friendly. These are the first two topics of Ten Big Ideas to Save the Economy, presented by MoveOn.org and Robert Reich in 3 minute videos.

The first Big Idea is the Fight for $15 – the campaign for a $15 minimum wage. If the minimum wage had kept up with increases in productivity since 1968, the minimum wage would be over $21 per hour. If it had simply kept up with inflation it would be over $10 per hour. If we want to be a decent and fair society, we need to pay working parents a decent and fair wage. Also, a higher minimum wage would save employers money be reducing turnover.

The second Big Idea is a set of policies and practices that make work family-friendly. Working parents need:

  • Equal pay for women
  • Predictable schedules with regular hours
  • Reliable, high quality child care
  • Paid family leave

We don’t have a healthy society if we don’t have healthy families and we can’t have a strong country if we don’t have strong families. Providing basic economic security and family-friendly workplaces for our working parents is critical to having strong, healthy families. This is not only an essential investment in families and our economy, but also in our future – our children.

FULL POST: Working parents in the U.S. are struggling both to make ends meet and to be good parents. They need to be paid a reasonable wage so that full-time work provides a decent standard of living for their families (as it used to). Furthermore, employers and government should work together to ensure that workplaces are family-friendly. These are the first two topics of Ten Big Ideas to Save the Economy, presented in 3 minute videos by Robert Reich (President Clinton’s Secretary of Labor) and MoveOn.org (the progressive, grassroots organization promoting participation in our democracy).

The first of these ten commonsense ideas to make our economy work for everyone is the Fight for $15 – the campaign for a $15 minimum wage. A $15 per hour wage would mean that a full-time worker would make about $30,000 a year. [1] Even at this level, many families would still be struggling to make ends meet. Currently, with the federal minimum wage at $7.25, a third of all families live paycheck to paycheck. If, since 1968, the minimum wage had kept up with increases in workers’ productivity (how much the output of their work is worth), the minimum wage would be over $21 per hour. If it had simply kept up with inflation it would be over $10 per hour. If we want to be a decent and fair society, we need to pay working parents a decent and fair wage.

Minimum wage workers are not kids making a little spending money; half of them are over 35 years old, many are women, and many are supporting families. A higher minimum wage would save employers money be reducing turnover, which reduces the costs of recruiting and training new workers. A number of cities (e.g., Seattle, San Francisco, and Los Angeles) have made the commitment to raising their minimum wages to $15 an hour; the rest of the country should follow suit.

The second Big Idea is a set of policies and practices that make work family-friendly. [2] For starters, women should receive equal pay. Also, working parents need predictable schedules with regular hours so they can plan their families’ schedules and know how much income they will have. In some business sectors (such as retail sales, food service, and home care), the majority of workers don’t know their schedules a week in advance. Some only get a few hours’ notice and some show up at work and are told to go home (without any pay) because it’s a slow day. Many employers manage part-time workers’ schedules to make sure they don’t earn any overtime or qualify for benefits. [3]

Reliable, high quality child care, including for out-of-school time when parents are working, needs to be universally available and affordable. Parents (both mothers and fathers) should receive paid family leave when a new child joins the family and if a health emergency occurs.

The benefits of raising the minimum wage and instituting family-friendly workplace policies are broad and reach well beyond workers and their families. Employers would benefit from having more reliable, productive employees. Society (i.e., taxpayers) would also benefit, not only from improved economic efficiency, but also because the children of working parents would be more likely to be successful in school and in life. Other developed countries have implemented most if not all of these policies; we can too if we have the public will to make this a priority.

We don’t have a healthy society if we don’t have healthy families and we can’t have a strong country if we don’t have strong families. Providing basic economic security and family-friendly workplaces is critical to having strong, healthy families. Family values means supporting working parents, which also gives their children a fair chance to succeed. Helping working parents is not only an essential investment in our families and our economy, but also in our children who are the future of our nation and our economy.

[1]       You can watch the 3 minute video at: http://civ.moveon.org/fightfor15/share.html?id=114907-5637721-4VHTwex#watch.

[2]       You can watch the 3 minute video at: http://civic.moveon.org/helpworkingfamilies/share.html?id=115612-5637721-L2wvmQx#watch.

[3]       Loth, R., 5/29/15, “For workers, ‘flexible’ schedule means unpredictability,” The Boston Globe

WHY ECONOMIC INEQUALITY CONTINUES TO GROW AND WHAT YOU CAN DO ABOUT IT

ABSTRACT: Despite many indicators that our economy is strong, most Americans are experiencing economic insecurity. Over half of US households have less than one month’s income in regular savings and median household income continues to decline. Low-wage workers at Walmart, McDonalds, and elsewhere are so poor they are receiving $45 billion in public assistance. This translates into the average US household paying $400 a year in taxes to support these workers.

So why are the majority of Americans falling behind economically? And why were things so different in the post-World War II period? The US job market has changed dramatically. Many full-time jobs have been replaced part-time jobs, contract work, and temporary work. Many large employers and some politicians have engaged in a conscious effort to undermine the bargaining power of workers and weaken the enforcement of labor laws. Policies that allow outsourcing of jobs overseas and high unemployment further undermine the availability of good jobs at good wages.

The ability of the public and voters to demand policies that support the middle class and workers has also been undermined. Wealthy individuals and corporations are now allowed to make huge contributions and expenditures in our elections, drowning out the voices of average voters. This means that economic inequality translates into political inequality and policies that favor the well-off. Furthermore, new barriers to voting and a strategy of paralyzing and denigrating government has fostered voter cynicism, which leads to “a downward spiral [of] depressed expectations and diminished participation.”

A genuine mass movement is needed to restore economic security and opportunity for the typical American worker. An opportunity to participate in building such a movement is available right now in the election of the Mayor of Chicago. Jesus “Chuy” Garcia is unexpectedly giving incumbent Mayor Rahm Emanuel, a crony of wealthy business interests, a run for his money. You can learn more about Garcia and contribute to his campaign at http://www.chicagoforchuy.com/index.html. The success of candidates like Garcia is critical to turning around the direction of our politics and policies, and to re-establishing government of, by, and for the people.

FULL POST: As the stock market sets record highs, as unemployment falls, and as the economy grows, most Americans are experiencing economic insecurity. Since 2007, US wealth as grown by over $30 trillion, but the number of children in families receiving public assistance to buy food has grown by 6.5 million to 16 million children (20% of all kids). Over half of public school students are poor enough to qualify for lunch subsidies and over half of US households have less than one month’s income in regular savings (as opposed to retirement accounts or home equity). Median household income has continued to decline in the 5 years since the official recession ended; 95% of income growth since 2009 has gone to the richest 1%. The jobs that are being created pay, on average, 23% less than the jobs that were lost. [1]

Low-wage workers (those earning less than $10.10 per hour) at Walmart, McDonalds, and elsewhere are so poor they are receiving $45 billion in public assistance. This translates into the average US household paying $400 a year in taxes to support these workers. Walmart’s highly publicized $1 raise for its lowest paid workers will cost the company about $1 billion per year. Its profits last year were $25 billion and it spent about $6.5 billion to buy back its own stock, enriching its investors. It’s estimated that taxpayers spent about $6 billion providing public assistance to Walmart employees last year. [2]

So why are the majority of Americans falling behind economically when many measures indicate that our economy is doing well and when the wealthy are doing very well? And why were things so different in the post-World War II period when our economy was doing well and the majority of Americans were getting ahead? Bob Kuttner offers seven reasons, which I summarize below. [3]

The US job market has changed dramatically. Many full-time jobs with career opportunities have been replaced part-time jobs, contract work, temporary work, and so forth. Many large employers and some politicians have engaged in a conscious effort to undermine the bargaining power of workers and weaken the enforcement of labor laws. Policies that allow outsourcing of jobs overseas and high unemployment (while limiting unemployment benefits) further undermine market forces that would provide good jobs at good wages – and with benefits.

Pro-business Republicans and Democrats have supported these policies. Furthermore, the ability of the public and voters to demand policies that support the middle class and workers has been undermined. Laws and court decisions have allowed wealthy individuals and corporations to make huge contributions and expenditures in our elections, drowning out the voices of average voters. This means that economic inequality translates into political inequality, and wealthy special interests can promote their own good at the expense of the public.

Similarly, laws and court decisions have made it more difficult for many voters to vote. And finally, a strategy of paralyzing and denigrating government, particularly at the national level, has fostered voter cynicism. This leads to passivity and lack of involvement in political activity including voting – “a downward spiral [of] depressed expectations and diminished participation.”

Kuttner says a genuine mass movement is needed to restore economic security and opportunity for the typical American worker, as well as democracy to our political process. He notes that the Roosevelt Revolution and New Deal of the 1930s accomplished this. The Civil Rights Movement of the 1960s also made major changes in economic justice and democratic processes. So it’s time again to throw off cynicism and apathy, and to activate and organize.

An opportunity to do so is available right now in the election of the Mayor of Chicago. Jesus “Chuy” Garcia is polling within 4 percentage points of incumbent Mayor, Rahm Emanuel, a crony of wealthy business interests (and former Chief of Staff for President Obama and former US Representative). As Mayor, Emanuel closed 50 public schools, attacked teachers, and engaged in privatizing schools, parking meters, transit fare collection, and other public sector functions and jobs. He has focused on downtown development while ignoring the neighborhoods. He has raised taxes and fees on working people while providing sweetheart deals for business people, many of whom have contributed to his election campaign. Emanuel has raised over $13 million, ten times what Garcia has raised, and has a super PAC backing him as well. He is receiving substantial support from wealthy business people who are active Republicans. [4]

Garcia shocked everyone in the primary by keeping Emanuel from getting a majority of the vote, thereby forcing the run-off election on April 7. If you would like to contribute to the movement to restore democracy, reduce inequality, and support workers and the middle class, supporting Garcia is a good opportunity. You can learn more about him and contribute to his campaign at http://www.chicagoforchuy.com/index.html. Even if you contribute just a few dollars, the number of donors is an important indication of the breadth of support. You can sign-up to make calls from your home encouraging Chicago residents to get out and vote for him here: http://pol.moveon.org/2015/garcia_calls.html?rc=kos.

The success of candidates like Garcia is critical to turning around the direction of our politics and policies, and to re-establishing government of, by, and for the people. Even if they don’t ultimately win, they change the issues and policies that are discussed, and help build the movement for change.

P.S. I think it’s noteworthy that there hasn’t been much coverage by the mainstream (corporate) media of this unexpectedly contested mayoral race in our 3rd largest city.

[1]       Buchheit, P., 2/9/15, “New evidence that half of America is broke,” Common Dreams

[2]       Buchheit, P., 3/16/15, “Four numbers that show the beating down of middle America,” Common Dreams

[3]       Kuttner, R., 3/23/15, “Why the 99 percent keeps losing,” Huffington Post

[4]       Perlstein, R., Feb. 2015, “How to sell off a city,” In These Times (http://inthesetimes.com/article/17533/how_to_sell_off_a_city)

RECLAIMING AN ECONOMY THAT WORKS FOR EVERYONE, NOT JUST THE WEALTHY

ABSTRACT: We need to reclaim our economy so it works for everyone, not just the wealthy. With different choices and policies that reflect a different set of values, our economy can once again be one where a rising tide lifts all boats, not just the yachts of the wealthiest.

The policy changes that are needed to support the middle and working class include:

  • Raise the minimum wage
  • Strengthen laws on equal pay for equal work
  • Strengthen labor laws and enforcement, including workers’ right to bargain collectively
  • Strengthen Social Security while protecting and encouraging pensions
  • Close corporate and individual income tax loopholes, and raise tax rates on unearned income
  • Ensure that trade treaties are fair to workers and citizens
  • Strengthen the Dodd-Frank financial reforms and reinstitute a small financial transaction tax
  • Create jobs and make needed investments in our infrastructure

We need new policies and programs that reflect values and choices that put the average citizen and worker first, rather than wealthy individuals and corporations. If some of these proposals resonate with you, contact your elected officials and tell them. A grassroots movement is needed to shift our economy from the current one that is working only for the wealthiest 10% to the one we used to have where everyone benefited from economic growth.

FULL POST: In my last post, I summarized policy choices that have undermined the middle and working class, largely based on a great speech Senator Elizabeth Warren gave recently. She states that it doesn’t have to be this way and spells out what we need to do to reclaim our economy so it works for everyone, not just the wealthy. [1] With different choices and policies that reflect a different set of values, our economy can once again be one where a rising tide lifts all boats, not just the yachts of the wealthiest.

The policies that undermined the middle and working class were justified by the theory of “trickle-down” or “supply-side” economics. It was used to justify large tax cuts for wealthy individuals and corporations because the theory said that the country could count on the biggest and richest corporations and the wealthiest individuals to share their growing wealth and create an economy that worked for everyone. The experience of the last 30 years has shown that President George H.W. Bush was right when he called this “voodoo economics.” Nonetheless, there are politicians today who still pledge allegiance to “trickle-down” economics, despite the fact, as Senator Warren states, that it has been shown to be the politics of helping the rich and powerful get more, while cutting off the legs of the middle class.

The set of values that should drive our policies include the following:

  • A person shouldn’t work full-time and be in poverty.
  • Women should receive equal pay for equal work.
  • Labor laws should be strengthened and enforced so that workers are
    • paid what they are due,
    • able to retire with dignity, and
    • able to bargain together as a group with employers for fair pay, benefits, and working conditions.
  • Our tax system should be fair and require wealthy individuals and corporation to pay their fair share. Workers shouldn’t pay higher income tax rates on their hard-earned income than the wealthy pay on their unearned income from investment gains and dividends.
  • The burden of student debt should be reduced.
  • Our trade policies should be fair for workers, creating jobs and raising wages in the U.S.
  • Big banks and financial corporations should not be too-big-to-fail, allowed to make risky investments with government insured deposits, or bailed out by taxpayers if they get into trouble.
  • Regulation and oversight should be enhanced, particularly of the big financial corporations, so consumers and our economy are protected from speculation and fraud.

The policy changes that are needed to support the middle and working class based on these values include:

  • Raise the minimum wage nationally. (Many states and cities are already doing this.)
  • Strengthen laws requiring and enforcing equal pay for equal work.
  • Strengthen labor laws and their enforcement, including workers’ right to form unions and bargain collectively so there is a balance of power between the workers and the employer during negotiations.
  • Strengthen Social Security while protecting and encouraging pensions, as well as personal and employer supported savings, such as 401(k)s.
  • Close corporate and individual income tax loopholes. For example, stop corporations and individuals from hiding income overseas to avoid paying taxes.
  • Raise tax rates on unearned income, including capital gains, dividends, and hedge fund mangers’ investment gains.
  • Allow students to refinance college loans at reduced interest rates and allow relief from student debt in bankruptcy.
  • Ensure that trade treaties are thoroughly debated in public and are fair to workers and citizens, balancing their interests with those of multi-national corporations.
  • Strengthen the Dodd-Frank financial reforms, as well as oversight and enforcement. Prevent financial corporations from gambling on risky investments with taxpayer insured deposits. Require too-big-to-fail corporations to split up into smaller entities.
  • Reinstitute a small financial transaction tax (for example, 0.5%) to discourage speculative trading and generate needed revenue.
  • Create jobs and make needed investments in our infrastructure by building roads, bridges, and schools; and investing in education and research.

While workers suffered after the 2008 economic collapse caused by out-of-control financial corporations, our politicians bailed out the corporations, often with no or few strings attached. Our politicians have also signed trade treaties and currently are negotiating new ones that are highly beneficial to multi-national corporations. Yet workers harmed by past policy changes and trade treaties, as well as homeowners who lost their homes and workers who lost their jobs in the 2008 collapse, have received little help and certainly have not been bailed out the way Wall Street was.

We need new policies and programs that reflect values and choices that put the average citizen and worker first, rather than wealthy individuals and corporations. I encourage you to listen to Warren’s speech if you haven’t already (just 23 minutes) or to read the press release. If some of these concerns or proposals resonate with you, contact your elected officials and tell them. A grassroots movement is needed to shift our economy from the current one that is working only for the wealthiest 10% to the one we used to have where everyone benefited from economic growth.

[1]     You can listen to and watch Warren’s 23 minute speech at: https://www.youtube.com/watch?v=mY4uJJoQHEQ&noredirect=1. Or you can read the text in the press release her office put out at: http://www.warren.senate.gov/?p=press_release&id=696.

THE UNDERMINING OF THE MIDDLE CLASS

ABSTRACT: Senator Elizabeth Warren gave a great speech recently in which she laid out how actions taken by corporations and related policy changes have undermined the middle and working class. She also spelled out what we need to do to change the rules of our economy so it works for everyone, not just the wealthiest. Up until the 1980s, our economy and the wages of the middle and working class grew together. But since the 1980s, all the growth of the economy has gone to the wealthiest 10%. Wages for the 90% of us with the lowest incomes have been flat, while our living expenses for housing, health care, and college have grown significantly.

This change in our economy, where all the benefits of growth go to the wealthiest 10%, represents a huge structural economic shift. It occurred because of cutting taxes; trade treaties; financial manipulation via leveraged buyouts and bankruptcies; minimum wage erosion with inflation; reductions in health care, unemployment, sick time, and overtime benefits; cutting of pensions and retiree benefits; and restrictions on employees’ rights to negotiate pay and working conditions as a group. Furthermore, corporations have been allowed to turn full-time employees into independent contractors or part-time workers who get no benefits and no job security.

These changes affect all workers, those in the private and public sectors, as well as both union and non-union employees. The changes were promoted by corporations and their lobbyists. Senator Warren states that it doesn’t have to be this way. We can make different choices and enact different policies that reflect different values. More on that next time.

FULL POST: Senator Elizabeth Warren gave a great speech recently in which she laid out how actions taken by corporations and related policy changes have undermined the middle and working class. She also spelled out what we need to do to change the rules of our economy so it works for everyone, not just the wealthiest. [1] She notes that up until the 1980s our economy and the wages of the middle and working class grew together. The rising tide of our growing economy did lift all boats. While the wealthiest 10% got more than their share of the growth (about 30%) in those years, the other 90% of us got 70% of the money generated by the growing economy.

But since the 1980s, all the growth of the economy has gone to the wealthiest 10%. The pay for Chief Executive Officers (CEOs) of corporations was 30 times that of average workers in the 1980s; today it is 296 times that of workers. And in the last 25 years, corporate profits have doubled as a portion of our economy, while the portion going to workers has declined. [2]

Wages for the 90% of us with the lowest incomes have been flat, while our living expenses for housing, health care, and college have grown significantly. Mothers have gone to work and parents are working more hours but this has not been enough to maintain a middle class standard of living. It certainly looks like today’s young people will be the first generation in America to be worse off than their parents.

Since 1980, the wages of the wealthiest 1% have grown by 138% (adjusted for inflation) while wages for the 90% with the lowest wages have received only a 15% increase (less than half of one percent per year). Workers have not received the benefit of their increased productivity, as was the case up until 1980. Since 1980, productivity has increased 8 times faster than workers’ compensation. If the federal minimum wage had kept up with productivity, it would be $18.42 instead of $7.25. And if it had kept up with inflation since 1968, it would be $19.58. [3]

This change in our economy, where all the benefits of growth go to the wealthiest 10%, represents a huge structural economic shift. So how did the economy get rigged so the top 10% get all the rewards of economic growth?

In the 1980s, government was vilified by politicians who were supported by corporate money. The supposed evils of big government were used to argue for deregulation and cutting taxes. This turned Wall Street’s financial corporations and other large multi-national corporations loose to maximize profits with no holds barred. Furthermore, trade treaties allowed corporations to manufacture goods overseas and bring them back into the U.S. with low or no tariffs, few U.S. regulations, and no regulations on how foreign labor was paid or treated. In addition, the U.S. corporations were allowed to cut benefits and pay for U.S. employees, including by undermining workers’ bargaining power in multiple ways, and through financial manipulation via leveraged buyouts and bankruptcies, as well as changes in tax laws.

Middle class workers have been undermined by corporations moving (or threatening to move) their jobs overseas and by changes in state and federal laws. The minimum wage has been eroded by inflation; workplace safety and legal protections have been weakened; health care, unemployment, sick time, and overtime benefits have been reduced; restrictions on child labor have been lifted; and it has become harder to sue an employer for discrimination. Pensions and retiree health benefits have been cut or eliminated. Just 34 of the Fortune 500 list of the largest corporations offered traditional pensions to new workers in 2013, down from 251 in 1998. [4] And wage theft through failure to pay the minimum wage or overtime wages, or through manipulation of time cards and other means, has spread. Meanwhile, enforcement of labor laws has been weak.

Employees’ rights to negotiate pay and working conditions as a group have been restricted. In addition, the middle class has been hammered by labor laws that allow corporations to turn full-time employees into independent contractors or part-time workers who get no benefits and no job security.

These changes affect all workers, those in the private and public sectors, as well as union and non-union employees. The changes were promoted by corporations and their lobbyists, along with corporate-funded think tanks, the Chamber of Commerce, the National Federation of Independent Business, the National Restaurant Association, the National Association of Manufactures, and other business groups. These efforts were also advanced by corporate-funded advocacy organizations such as the American Legislative Exchange Council (ALEC), Americans for Tax Reform, and Americans for Prosperity. [5]

Senator Warren states that it doesn’t have to be this way. We can make different choices and enact different policies that reflect different values. My next post will discuss those values and policies. In the meantime, I encourage you to listen to Warren’s speech (just 23 minutes while you’re doing something else) or to read the press release. (See footnote 1 for links to them.)

[1]     You can listen to and watch Warren’s 23 minute speech at: https://www.youtube.com/watch?v=mY4uJJoQHEQ&noredirect=1. Or you can read the text in the press release her office put out at: http://www.warren.senate.gov/?p=press_release&id=696.

[2]       Tankersley, J., 12/25/14, “Amid gain, middle class wages get no lift,” The Boston Globe from the Washington Post

[3]       Economic Policy Institute, 12/24/14, “The 10 most important econ charts of 2014 show ongoing looting by the top 1 percent,” The American Prospect

[4]       McFarland, B., 9/3/14, “Retirement in transition for the Fortune 500: 1998 to 2013,” Towers Watson (http://www.towerswatson.com/en/Insights/Newsletters/Americas/Insider/2014/retirement-in-transition-for-the-fortune-500-1998-to-2013)

[5]       Lafer, G., 10/31/13, “The legislative attack on American wages and labor standards, 2011-2012,” Economic Policy Institute (http://www.epi.org/publication/attack-on-american-labor-standards/)

2014 ELECTION RETROSPECTIVE PART 1: THE MONEY

ABSTRACT: In the 2014 election, the influx and impact of huge amounts of money was clearly evident and the growth of “dark money” – money where the actual contributor is unknown – was a very significant factor. This was the most expensive non-presidential election ever – estimated at $3.7 billion. Outside spending, that is money not spent by the candidates’ campaigns themselves but by supposedly independent groups and the political parties, was more than the spending by the candidates themselves for the first time. This means that accountability for much of what’s said during campaigns no longer rests with the candidates. One facet of this is that a predominant portion of the ads paid for by outside money are negative ads that attack a candidate. These campaign practices undermine both the functioning of and the faith in our democracy.

Roughly a billion dollars was spent on the 36 US Senate races alone – an average of about $30 million each. In the 11 most competitive races for the US Senate, $342 million of non-party outside money was spent with $203 million of this (59%) being “dark money” where the true donor is unknown. The typical contribution to the 5 largest non-party outside spending entities that disclose donors was over $100,000.

The real money story of this election was not which side had more resources, but that such a large chunk of the cost was paid for by a small group of ultra-wealthy donors. By super-sizing contributions that benefit specific candidates, the likelihood of corruption escalates because elected officials are pressured to repay big donors after the election.

The results of the Supreme Court’s Citizens United and other decisions couldn’t be clearer. Hundreds of millions of dollars from undisclosed donors are flooding our elections. Very wealthy donors are contributing millions of dollars. There is very strong evidence that this money is influencing who wins our elections, because the candidate supported by the most money usually wins. This was true for 94% of US House races and 82% of US Senate races in 2014.

There is also strong evidence that our Congress returns the favor by supporting the wealthy interests that funded their elections and put them in office – to the detriment of the middle and working classes. We need look no further than Wall St. to see the evidence: corporate profits, stock prices, CEO pay, and investors’ wealth have never been higher. Yet, the middle and working class still struggle to make ends meet.

This is not democracy. We need to reverse the Supreme Court’s decisions through a Constitutional Amendment. In the meantime we need much stronger disclosure laws for campaign spending so we know who is trying to influence our votes. More on this next time.

FULL POST: In the 2014 election, the influx and impact of huge amounts of money was clearly evident and the growth of “dark money” – money where the actual contributor is unknown – was a very significant factor.

In this post, I will review the role of money in the 2014 national election. In a subsequent post, I’ll identify ways we can address the corrupting and undemocratic flow of huge sums of money into our elections. Further analysis of the 2014 election in future posts will cover some state and local elections results, as well as the success of progressive candidates and ballot initiatives (despite the general, national success of “conservative” and Republican candidates).

This was the most expensive non-presidential campaign ever – estimated at $3.7 billion. Outside spending, that is money not spent by the candidates’ campaigns themselves but by supposedly independent groups and the political parties, was more than the spending by the candidates themselves for the first time. This means that accountability for much of what’s said during campaigns no longer rests with the candidates. They can – and do – say that they have no control over the outside groups. With increasing amounts of outside spending, and especially the growth of spending by groups that do not have to disclose contributors, accountability for and constraints on what is said vanish. One facet of this is that a predominant portion of the ads paid for by outside money are negative ads that attack a candidate. This tends to discourage people from voting and lowers their opinions of our elected officials and government. These campaign practices undermine both the functioning of and the faith in our democracy.

Roughly a billion dollars was spent on the 36 US Senate races alone – an average of about $30 million each. North Carolina’s Senate race was the most expensive ever with $116 million spent, including $84 million of outside spending – which shattered the previous outside spending record of $52 million. Spending on the 10 most expensive US House races averaged over $16 million each. [1]

In the 11 most competitive races for the US Senate, [2] $342 million in non-party outside money was spent, plus $89 million from the political parties. The non-party, outside spending on just these 11 races is one-third more than the outside spending on all 33 Senate races in 2012. Of the $342 million of non-party outside money, $203 million (59%) was “dark money” where the true donor is unknown. And this “dark money” may have tipped these elections, as winners of these races received twice as much “dark money” as the losers. For the 8 Republican winners, an average of 78% of their non-party, outside money was “dark money.” [3]

Non-party outside spending is NOT funded by regular voters. The typical contribution to the 5 largest non-party outside spending entities that disclose donors was over $100,000. For sake of comparison, this is more than the average household income in the US, which is $73,000. Of the top 20 outside spending groups, which together spent over $300 million, 7 provide no disclosure of donors, 5 provide partial disclosure, and only 8 provide full disclosure (2 of which are the national parties). [4]

To get an idea of the huge amounts these large donors give:

  • The top 20 individual donors to outside groups gave an average of $8.4 million each, while
  • The top 20 organizations donating to outside groups gave an average of $5.8 million each.

All told, these two groups of 40 donors gave a combined $284.7 million, which far exceeds the projected spending of either of the national parties. [5]

This election documented again that money is a deciding factor. When “conservative” outside groups outspent “liberal” groups, the “conservative,” i.e., Republican, candidate won every time. [6] However, the real money story of this election was not which side had more resources, but that such a large chunk of the cost was paid for by a small group of ultra-wealthy donors. [7]

A particular type of outside spending that is of special concern is candidate-specific super PACs. Big donors are using these groups to evade limits on contributions directly to candidates. By super-sizing contributions that benefit specific candidates, the likelihood of corruption escalates because elected officials are pressured to repay big outside donors after the election. [8]

The results of the Supreme Court’s Citizens United and other decisions couldn’t be clearer. Hundreds of millions of dollars from undisclosed donors are flooding our elections. Very wealthy donors are contributing millions of dollars. There is very strong evidence that this money is influencing who wins our elections, because the candidate supported by the most money usually wins. This was true for 94% of US House races and 82% of US Senate races in 2014.

As others have said, we have the best Congress money can buy. There is also strong evidence that our Congress returns the favor by supporting the wealthy interests that funded their elections and put them in office – to the detriment of the middle and working classes. We need look no further than Wall St. to see the evidence: corporate profits, stock prices, CEO pay, and investors’ wealth have never been higher. Yet, the middle and working class still struggle to make ends meet.

This is not democracy. We need to reverse the Supreme Court’s decisions through a Constitutional Amendment. In the meantime we need much stronger disclosure laws for campaign spending so we know who is trying to influence our votes. Unfortunately, Congress is very unlikely to strengthen disclosure laws, so it will be up to each state to do so.

More on what’s being done to address these issues, and on what you can do, in an upcoming post.

[1]       Waldman, P., 11/11/14, “This year’s biggest spenders,” The American Prospect

[2]       Alaska, Arkansas, Colorado, Georgia, Iowa, Kansas, Kentucky, Louisiana, Michigan, New Hampshire, and North Carolina.

[3]       Vandewalker, I., 11/10/14, “Outside spending and dark money in toss-up Senate races: Post-election update,” Brennan Center for Justice (http://www.brennancenter.org/analysis/outside-spending-and-dark-money-toss-senate-races-post-election-update)

[4]       Vandewalker, I., 11/10/14, see above

[5]       OpenSecrets.org, 10/29/14, “Overall Spending Inches Up in 2014: Megadonors Equip Outside Groups to Capture a Bigger Share of the Pie,” Center for Responsive Politics (http://www.opensecrets.org/news/2014/10/overall-spending-inches-up-in-2014-megadonors-equip-outside-groups-to-capture-a-bigger-share-of-the-pie/)

[6]       Miller, J., 11/5/14, “Top 5 Senate races where dark money and outside spending ran wild,” The American Prospect

[7]       Choma, R., 11/5/14, “Money won on Tuesday, but rules of the game changed,” Center for Responsive Politics (https://www.opensecrets.org/news/2014/11/money-won-on-tuesday-but-rules-of-the-game-changed/)

[8]       Vandewalker, I., 10/21/14, “Election Spending 2014: 9 Toss-Up Senate Races,” Brennan Center for Justice (http://www.brennancenter.org/publication/election-spending-2014-9-toss-senate-races)

40 YEARS OF CLASS WARFARE

ABSTRACT: Class warfare has been going on in the US for 40 years, but most people either haven’t realized that it is class warfare, or deny its existence. Inequality between the wealthy, elite class and the middle and working class has grown dramatically. This is the result of policy decisions made by federal and state governments not the accidental or inevitable result of non-political events or changes in our economy.

Since 1979, workers’ productivity has grown by 65% but their median pay has grown by only 8%. Large employers’ profits after taxes have increased 239% since 1980.

Since the 1970s, changes in government policies have tended to reward corporations, their executives and investors, at the expense of workers. Trade policies, deregulation, tax policies, and labor laws are key examples. As the incomes of the richest 1% have grown dramatically, the income tax rate for those with the highest incomes has been reduced from 70% to 39%, with even lower rates on income from investments (as opposed to income from work). Meanwhile, the minimum wage has failed to even keep up with inflation.

Increasing incomes for the working and middle class doesn’t just benefit them and their families, it will benefit the whole economy by increasing the purchasing power of the average consumer. Consumer spending is two-thirds of our economy.

It’s time to acknowledge that 40 years of class warfare has occurred, that government policies have been its weapons, and that tremendous (and growing) inequality has been the result. It’s time to work to improve the pay, benefits, and job security of the working and middle class. And it’s time for our wealthy individuals and corporations to pay their fair share of our taxes. Policy changes to achieve these results are possible and will be essential to strengthening our economy and reducing the startling inequality present in America today.

FULL POST: Class warfare has been going on in the US for 40 years, but most people either haven’t realized that it is class warfare, or deny its existence. The incomes and wealth of the wealthiest individuals and families in the US have grown dramatically, while the vast majority of Americans have seen their incomes stagnate, at best, and their wealth fall with the crash of home prices and the financial system in 2008. Large employers’ profits have grown significantly as well, while workers’ pay has stagnated or fallen.

As a result, inequality between the wealthy, elite class and the middle and working class has grown dramatically. This is the result of policy decisions made by federal and state governments, driven by wealthy campaign donors and lobbyists. It is not the accidental or inevitable result of non-political events or changes in our economy.

It used to be that as our economy and worker productivity grew, the rising tide lifted all boats. From 1947 to 1973, workers’ productivity grew by 97% and their median pay grew by 95%. That changed in the 1970s when the 40 years of class warfare began. Since 1979, workers’ productivity has grown by 65% but their median pay has grown by only 8%. The share of the national economy’s income going to workers in wages and salaries has declined from 67% (where it had been for decades) to 58% (the lowest level since this statistic has been recorded). Meanwhile, the share going to corporate profits is at a record high. [1] Large employers’ profits after taxes have increased 239% since 1980. [2]

Since the 1970s, changes in government policies have tended to reward corporations, their executives and investors, at the expense of workers. Trade policies, deregulation, tax policies, and labor laws are key examples. These policy changes have allowed and provided incentives for corporations to shift jobs overseas, reducing jobs and wages in the US. Financial deregulation has benefited Wall St. corporations and executives while hurting average American homeowners, credit card holders, and borrowers. Small businesses have been hurt by trade policies, deregulation, and tax policies that favor big corporations.

Changes in labor laws have shifted the balance of power toward employers, especially large employers, at the expense of workers. The use of part-time workers, “temporary” employees, and “independent” contractors instead of full-time employees has stripped workers of job security, benefits, and labor law protections, including the ability to unionize.

During the first 30 years of this class warfare, workers made up for the lack of income growth by working more hours (especially by women in two-parent households) and by borrowing, most notably against their homes (mortgages, second mortgages, and home equity loans), through their credit cards, and for the costs of higher education. Then, the Great Recession hit and the incomes and assets (primarily homes) of the middle and working class crumbled.

The result of this multi-faceted warfare against the working and middle class is the following (all figures adjusted for inflation):

  • Bottom 90% of the US population
    • Average household income: $31,000, down 24% since 1980
  • Top 10%
    • Average household income: $175,000, up 46% since 1980
  • Top 1%
    • Average household income: $700,000, up 124% since 1980

The top 10% of Americans as a group now have as much income as the bottom 90% for the first time in 100 years. And the average US CEO’s salary is now 331 times the average workers’ pay. [3] The inequality in wealth is even greater than the inequality in income; the top 1% have 76% of wealth in the US.

If the incomes of all classes had grown at the same rate since 1979, low and middle income families would be earning $6,000 – $8,000 more each year than they are. [4]

In perhaps the starkest example of this class warfare, as the incomes of the richest 1% have grown dramatically, and as inequality has grown dramatically, the income tax rate for those with the highest incomes has been reduced from 70% to 39%. And many of those with the highest incomes pay a far lower effective income tax rate because of tax loopholes (such as offshore tax havens) and even lower rates on income from investments (as opposed to income from work).

Another stark example of this class warfare is that as upper incomes have soared, the minimum wage has failed to even keep up with inflation. This is a clear example of the eroding power of workers and a significant factor underlying their eroding incomes. Although successful efforts to increase the minimum wage have recently occurred in some states and cities, this is only one piece of a much larger puzzle. Much more will need to be done if workers are to regain the financial well-being and stability they enjoyed from the end of World War II until the 1970s.

Increasing incomes of the working and middle class doesn’t just benefit them and their families, it will benefit the whole economy by increasing the purchasing power of the average consumer. Consumer spending is two-thirds of our economy and the current economic recovery has been slow and weak because consumers simply don’t have money to spend.

It’s time to acknowledge that 40 years of class warfare has occurred, that government policies have been its weapons, and that tremendous (and growing) inequality has been the result. It’s time to work to improve the pay, benefits, and job security of the working and middle class. And it’s time for our wealthy individuals and corporations to pay their fair share of our taxes. Policy changes to achieve these results are possible and will be essential to strengthening our economy and reducing the startling inequality present in America today.

[1]       Meyerson, H., July / August 2014, “Why Democrats need to take sides,” The American Prospect

[2]       Gilson, D., Sept. / Oct. 2014, “Survival of the richest,” Mother Jones

[3]       In These Times, Sept. 2014, “Just the facts,” In These Times

[4]       Horowitz, E., 8/23/14, “Mass. Economy still hasn’t rebounded,” The Boston Globe

THE BIGGEST LOSERS IN DETROIT’S BANKRUPTCY

ABSTRACT: The biggest losers in Detroit’s bankruptcy appear to be school children, current and former city employees, and poor residents. The emergency plan for Detroit’s public schools calls for increasing class sizes from 38 to 43 students in grades 6 – 12. Spending on classroom instruction has been cut 19% (falling from 58% of the school budget to 47%), while spending on central administration has grown by 64%. Detroit’s workers and retirees have agreed to accept cuts in their pensions.

Since March, over 15,000 households in Detroit have had their water cut off. While residents’ water has been shut off if they owe more than $150, 40 commercial users that owe a total of $9.5 million have not been shut off.

This country spent hundreds of billions of dollars to bail out huge financial corporations (that had engaged in egregious misconduct) so that they wouldn’t go bankrupt. We should be able to help poor and unemployed residents of Detroit so their water isn’t shut off, to ensure Detroit’s children get a good education, and to provide reasonable cost of living increases for city employees’ pensions – all for a tiny fraction of the cost of the bank bailout.

FULL POST: The biggest losers in Detroit’s bankruptcy appear to be school children, current and former city employees, and poor residents.

The emergency manager of Detroit’s public schools has put forward his emergency plan. It calls for increasing class sizes from 38 to 43 students in grades 6 – 12. Since control of the budget was removed from the elected school board, spending on classroom instruction has been cut 19% (falling from 58% of the school budget to 47%). Meanwhile, spending on central administration has grown by 64%. [1]

Detroit’s workers and retirees have agreed to accept cuts in their pensions (reluctantly I’m sure). Regular municipal employees’ pensions would be cut by 4.5% and they will get no annual inflation adjustments. (The average municipal workers’ pension is less than $23,000 per year.) Police and firefighters will lose only a portion of their annual inflation adjustment. [2]

Since March, over 15,000 households in Detroit have had their water cut off. The Detroit Water and Sewage Department has announced plans to shut off up to 3,000 households per month. A recent 15 day moratorium on some shutoffs was announced, but it is temporary and some shutoffs will continue. A human rights complaint has been filed with the United Nations, where a spokesperson noted that, “when there is genuine inability to pay, human rights forbids disconnections.” While residents’ water has been shut off if they owe more than $150, 40 commercial users that owe a total of $9.5 million have not been shut off. For example, the water is still on at a golf course that owes $200,000 and two sports venues that owe $80,000 and $55,000. [3]

Water bills in Detroit have more than doubled in the last 10 years and an 8.7% increase was recently approved. Meanwhile, over 40% of Detroit residents live below the federal poverty line (roughly $20,000 for a family of 3) and unemployment is at record levels.

This country spent hundreds of billions of dollars to bail out huge financial corporations (that had engaged in egregious misconduct) so that they wouldn’t go bankrupt. We should be able to help poor and unemployed residents of Detroit so their water isn’t shut off, to ensure Detroit’s children get a good education, and to provide reasonable cost of living increases for city employees’ pensions. All of this, together, would cost a tiny fraction of the cost of the bank bailout – on the order of $1 for every $1,000 given to the banks.

[1]       Clawson, L., 7/18/14, “Detroit schools emergency manager raises class size to emergency levels,” Daily Kos (http://www.dailykos.com/story/2014/07/18/1314775/-Detroit-schools-emergency-manager-raises-class-size-to-emergency-levels)

[2]       Daily briefing, 7/22/14, “Detroit retirees agree to pension cuts,” The Boston Globe

[3]       Prupis, N., 7/24/14, “Canadian group delivering water to Detroit to protest shutoffs,” Common Dreams (http://www.commondreams.org/news/2014/07/24/canadian-group-delivering-water-detroit-protest-shutoffs)

INEQUALITY IS NOT INEVITABLE

ABSTRACT: “Inequality is not inevitable” is the title of a recent piece in the New York Times by Joseph Stiglitz. Our current levels of inequality – and the undermining of the middle class – are the result of policies and politics, not a fundamental feature of capitalism. One example is the recent bailout of the large bank and financial corporations with hundreds of billions of taxpayers’ dollars while only a pittance went to homeowners and other victims of these corporations’ predatory lending.

Our campaign finance laws allow economic inequality to lead to political inequality by letting the wealthy buy political influence. And political inequality increases economic inequality in a vicious cycle: politicians increase corporate welfare and give the rich tax cuts while cutting support for middle class workers and the poor.

True economic success is measured by how well the typical citizen is doing, especially in America, which claims to be the bastion of equal opportunity. But here in the US, the typical worker’s income is lower today than it was 25 years ago.

There are policy solutions that will simultaneously strengthen our economy, address the federal government’s budget deficit and debt issues, tackle our infrastructure needs, and reduce inequality. Tax reform is a core ingredient of these policy changes. (See details below.) It and other policies that can and should be changed will reduce inequality, improve our economy, and address other important issues.

FULL POST: “Inequality is not inevitable” is the title of a recent piece in the New York Times by Joseph Stiglitz, [1] a Nobel prize-winning economist. It is the final piece of a New York Times series on inequality entitled “The Great Divide.” [2] The series presents a wide range of examples that demonstrate that our current levels of inequality – and the undermining of the middle class – are the result of policies and politics, not a fundamental feature of capitalism. Other countries’ economies are performing as well or better than ours with far greater equality.

Policies that have increased inequality and weakened the middle class include the recent bailout of the large bank and financial corporations with hundreds of billions of taxpayers’ dollars while only a pittance went to homeowners and other victims of these corporations’ predatory lending. More help for homeowners and the unemployed would have helped the economy recover more quickly and vigorously. We also allow corporate monopolies and near monopolies to exist and make huge profits while they ship jobs and profits overseas, avoiding paying US taxes.

Our campaign finance laws allow economic inequality to lead to political inequality by letting the wealthy buy political influence. And political inequality increases economic inequality in a vicious cycle: politicians increase corporate welfare and give the rich tax cuts while cutting support for middle class workers and the poor. The wealthy corporations and individuals increase their wealth, not by working harder or being smarter, but by manipulating the rules of our economic and political systems. As a result, for example, corporate income taxes have declined as a portion of the federal government’s revenue from 39.8% in 1943 to 9.9% in 2012. Furthermore, Wall St. corporations and executives were not brought to justice for their criminal behavior that led to the economic collapse, or even for their abuse of our legal system in foreclosing on and evicting homeowners, inappropriately, fraudulently, and sometimes in total error.

True economic success is measured by how well the typical citizen is doing, especially in America, which claims to be the bastion of equal opportunity. But here in the US, the typical worker’s income is lower today than it was 25 years ago. And the life prospects of our children are determined more by the income and education of their parents than they used to be, and more than they are in other advanced countries. The tremendous growth in income and wealth of the top 1% in the US has not trickled down, it has evaporated, often in Caribbean and other tax havens. [3] There is compelling evidence that the current level of inequality in the US is weakening our economy and our social cohesion.

There are policy solutions that will simultaneously strengthen our economy, address the federal government’s budget deficit and debt issues, tackle our infrastructure needs, and reduce inequality. We can improve economic growth, promote economic efficiency, and reduce unemployment through changes in our tax system. Tax reform is a core ingredient of the policy changes needed to reduce inequality. Such tax reform includes: [4]

  • Reducing incentives and opportunities for corporations and wealthy individuals to avoid paying taxes
  • Increasing the top marginal income tax rates and reducing preferential treatment of unearned income, such as capital gains and dividends
  • Reforming corporate taxation to incentivize investing in the US (rather than overseas) and to close loopholes that are essentially corporate welfare
  • Taxing too-big-too-fail financial institutions to create a rescue fund (for future, probably inevitable bailouts) and to provide a disincentive for unlimited corporate growth and for speculative, highly leveraged financial activities that increase the likelihood of a bailout
  • Implementing a financial transaction tax to provide a disincentive for unproductive and sometimes harmful financial speculation and activity, such as high volume, high speed, computer-driven trading
  • Reforming the estate and inheritance tax to improve economic efficiency and fairness
  • Taxing pollution and other negative environmental effects
  • Ensuring the government gets full value when it sells public assets, such as natural resources like oil and gas

Tax reform is not an end in itself. The objective is to create a more efficient tax system, while simultaneously producing higher employment and economic growth, reducing inequality and environmental harm, and enhancing the efficiency of our economy.

Inequality is the result of tax and other policies that can and should be changed. Moreover, well-designed changes that address inequality will simultaneously improve our economy and address other important issues.

[1]       Stiglitz, J., 6/29/14, “Inequality is not inevitable,” The New York Times

[2]       See a listing and abstracts of The Great Divide series at http://opinionator.blogs.nytimes.com/category/the-great-divide/?module=BlogCategory&version=Blog Post&action=Click&contentCollection=Opinion&pgtype=Blogs&region=Header

[3]       Stiglitz, J. 6/29/14, see above

[4]       Stiglitz, J., 5/28/14, “Reforming taxation to promote growth and equity,” The Roosevelt Institute, http://rooseveltinstitute.org/sites/all/files/Stiglitz_Reforming_Taxation_White_Paper_Roosevelt_Institute.pdf

CEO PAY: THE RACE TO THE TOP FOR THOSE AT THE TOP

ABSTRACT: CEO pay has increased over 50% in the last 4 years while pay for workers has barely increased. The typical CEO’s pay in 2013 was $10.5 million. The industry with the fastest growth in pay was the banking industry where CEO pay grew 22% in 2013 – on top of 22% growth the year before. While the economy remains weak and unemployment is high, the executives in the banking sector – that we as taxpayers bailed out after they crashed our economy – are making money hand over fist.

CEO pay has increased dramatically over not only the last 4 years but over the last 35 years for a variety of reasons. There also are a variety of reasons that the average workers’ pay has barely increased over the last 4 years and over the last 35 years as well. (See below for more detail.)

As income and wealth inequality have grown dramatically in the US over both the last 4 years and the last 35 years, the wealthy have re-invested part of their windfall in buying influence in our political system through campaign spending and lobbying. They have succeeded in tilting government policies to favor them and their large, typically multi-national, corporations.

Our elected representatives can and should change government policies and actions so that the growing inequality in the US is reduced. We, as the voters in a democratic political system, need to – and can – make them do so.

FULL POST: CEO pay has increased over 50% in the last 4 years while pay for workers has barely increased. CEO pay is now 257 times that of the average worker, up sharply from 181 times workers’ pay in 2009. The typical CEO’s pay in 2013 was $10.5 million – topping the $10 million mark for the first time. The highest paid CEO got over $68 million and the top 10 were all over $31 million. [1] CEO pay was up 8.8% last year while the average workers’ pay rose only 1.3%. [2] And CEO’s wealth is increasing dramatically too, in part because over 40% of their pay is in stock, where gains are taxed at a lower rate than regular cash income.

The industry with the fastest growth in pay was the banking industry where CEO pay grew 22% in 2013 – on top of 22% growth the year before. While the economy remains weak and unemployment is high, the executives in the banking sector – that we as taxpayers bailed out after they crashed our economyare making money hand over fist.

CEO pay has increased dramatically over not only the last 4 years but over the last 35 years for a variety of reasons. One reason is that CEO pay is set by corporate Boards of Directors that include many current and former CEOs of other corporations and often include members hand-picked by the CEO him or herself. When friends and peers set your pay level, is it any surprise you get big increases? Furthermore, every corporation and board want to tout their CEO as the best and the brightest – and, of course, therefore, the highest paid. Hence, it becomes a race to the top for those at the top. [3] If shareholder approval were required for CEO pay, perhaps things would be different.

There also are a variety of reasons that the average workers’ pay has barely increased over the last 4 years and over the last 35 years as well. Over the last 4 years, high unemployment has meant that workers have little leverage to ask for pay raises and corporations don’t need to reward workers because there is little opportunity for workers to quit and find another job. Workers’ negotiating power has also been eroded over the last 35 years by the decline of union membership and power. In 1983, over 20% of workers were members of unions compared to 11% in 2013. Globalization and technology have played a role by reducing the number of middle class jobs in the US, which tends to increase unemployment and reduce workers’ bargaining power and wages. However, their effects could have been ameliorated through rules governing trade that better protect workers both at home and abroad, as well as by policies and programs for job retraining and retention. [4]

As income and wealth inequality have grown dramatically in the US over both the last 4 years and the last 35 years, the wealthy have re-invested part of their windfall in buying influence in our political system through campaign spending and lobbying. They have succeeded in tilting government policies to favor them and their large, typically multi-national, corporations. These policies include:

  • Tax laws that a) have dramatically reduced the income tax rate on high incomes, b) have even lower rates for unearned income (i.e., income from investments), and c) favor corporations;
  • Government spending priorities, that include bailouts for financial and banking corporations but not for homeowners and workers who were devastated by the recession caused by the financial and banking industry; and
  • Labor and other laws that weaken workers’ bargaining power and fail to increase the minimum wage to keep up with inflation.

Our elected representatives can and should change government policies and actions so that the growing inequality in the US is reduced. We, as the voters in a democratic political system, need to – and can – make them do so.

[1]       Sweet, K., 5/28/14, “Median pay for CEOs rises sharply to $10.5m,” The Boston Globe from the Associated Press

[2]       Boak, J., 5/28/14, “Why executives get lavish compensation as rank-and-file wages lag,” The Boston Globe from the Associated Press

[3]       Boak, J., 5/28/14, see above

[4]       Boak, J., 5/28/14, see above

THE IGNORED DEFICIT IN PUBLIC GOODS

ABSTRACT: The federal government’s budget deficit is getting more attention than it deserves. It is half of what it was in 2009 and is at what economists consider a manageable level. Meanwhile, our deficit in investments in public goods is being almost totally ignored. Public goods are things of value to society but in which individuals, businesses, and other private organizations don’t and won’t invest.

These public goods are essential to a prosperous society. However, the US has been under-investing in public goods for decades. The paradox of public goods is that they are forgotten, unacknowledged, and in effect invisible when they are readily available.

Government spending on public goods has been in a relatively steep decline since the 2008 economic crash. And for the 30 years before that the investment in public goods had been in a slow decline.

Those opposed to a robust government, ideologically or due to self-interest, have engaged in an active campaign to get the public to forget the personal and societal benefits they receive from government. A discussion about public goods is largely missing from our media and society.

We need to correct this omission in our discourse and our investment in order to have a prosperous society. Without necessary public goods, we cannot maintain our health and productivity as individuals; nor will we be able to maintain the health and productivity of our businesses and ultimately those of our economy and society.

FULL POST: The federal government’s budget deficit is getting more attention than it deserves. It is half of what it was in 2009 and is at what economists consider a manageable level. (See post of 4/6/13. [1]) Meanwhile, our deficit in investments in public goods is being almost totally ignored.

Public goods are things of value to society but in which individuals, businesses, and other private organizations don’t and won’t invest. Public goods provide public benefits and require collective efforts and responsibility. Therefore, the public sector, namely government, must take responsibility for them. Children’s education, from birth through high school and beyond, is a classic example. Transportation infrastructure is another, including roads, railroads, bridges, airports, and ports. Other examples include parks, libraries, scientific research, public and individual health (including healthy air and water), and public safety (including safe communities, workplaces, homes, food, and medicine). A large, thriving, economically solid middle class may be the ultimate public good.

These public goods are essential to a prosperous society. [2] However, the US has been under-investing in public goods for decades. Part of the reason for this is that when they are present and functioning effectively, we forget about them – they are out of sight and out of mind. This is the paradox of public goods: they are unacknowledged and in effect invisible when they are readily available. We forget that there was a need or problem that has been addressed. Or we don’t realize that a problem, such as polluted drinking water, could occur if we don’t invest in protective and preventive measures. We forget that public expenditures by government were what met the need, maintain the solution, and prevent problems. [3]

However, here in the US, we are beginning to notice our public goods deficit. We’ve had bridges collapse or be closed because they are unsafe. Many of our school buildings are old, out-of-date, and in some cases unsafe. Students are leaving college with huge debts. Local governments are cutting police, fire, and school personnel. Our middle class and its economic security is dwindling. And so on.

Government spending on public goods has been in a relatively steep decline since the 2008 economic crash. And for the 30 years before that the investment in public goods had been in a slow decline. Economist John Kenneth Galbraith warned us way back in the 1950s that improper government budget priorities could lead to “private opulence and public squalor.”

In addition to the invisibility of public goods, those opposed to a robust government, ideologically or due to self-interest, have engaged in an active campaign to get the public to forget the personal and societal benefits they receive from government spending and actions. They have explicitly labeled government as the problem not a solution to problems. In fact, a survey of the public found that 94% of those who reported never receiving a benefit from a government program had indeed received benefits from one or more government programs and on average from four programs. [4]

A discussion about public goods is largely missing from our media and society. The notion of air, water, parks, and so forth, as shared public goods that require and deserve public investment is mostly missing from public consciousness. Our discussion of the production of wealth and goods by the private sector is robust, but the discussion is atrophied in terms of the role of the public sector and of the public goods that it produces, maintains, and protects.

We need to correct this omission in our discourse and our public spending in order to have a prosperous society. Without necessary public goods, we cannot maintain our health and productivity as individuals; nor will we be able to maintain the health and productivity of our businesses and ultimately those of our economy and society.


[2]       Hacker, J.S., & Loewentheil, N., 2012, “Prosperity economics: Building an economy for all,” Prosperity for All (http://www.prosperityforamerica.org/wp-content/uploads/2012/09/prosperity-for-all.pdf)

[3]       Derber, C., & Sekera, J., 1/22/14, “An invisible crisis: We are suffering from a mushrooming public goods deficit,” The Boston Globe

[4]       Mettler, S., 9/19/11, “Our hidden government benefits,” The New York Times

HISTORY AND LEAKS MAKE CASE AGAINST “TRADE” TREATIES

ABSTRACT: Twenty years of experience with previous “trade” treaties and the recent leaks of draft language for the Trans-Pacific Partnership (TPP) make the case that the “trade” treaties currently in negotiation will not benefit the US economy, our workers, or our middle class. These treaties focus on and benefit multi-national corporations and investors, rather than trade and the public interest. (See my previous posts of 1/13, 1/8, 9/13/13, and 9/10/13 for more detail.)

The growing resistance to Fast Track authority and these new “trade” agreements in Congress and the public is fueled by growing data on the damaging impacts of the 20 year history of the North American Free Trade Agreement (NAFTA). The same claims are being made for the current trade treaties as were made for NAFTA: that they will promote economic growth, increase jobs, and reduce trade deficits or increase trade surpluses. However, the Mexican trade surplus ($2 billion in 1993) quickly turned into growing deficits, totaling $1 trillion over the 20 year life of NAFTA. With Canada, the other country in NAFTA, the story is similar.

It is estimated that NAFTA has eliminated almost 700,000 jobs in the US. NAFTA established the principle that US corporations could move production out of the US but import the goods produced back into the US without any tariffs or other disincentives. This undermines the wages and benefits of American workers and the middle class. In all three NAFTA countries, wages and benefits for workers have not kept up with increased worker productivity over the last 20 years.

Since NAFTA, the US has entered into trade agreements with Korea, China, and others. While the promise has always been growth in US jobs, our economy, and our trade balance, the result has typically been the opposite. The trade agreements of the past 20 years have cost our economy more than $1 trillion through increased trade deficits and close to a million jobs.

I urge you to contact your elected officials in Washington and tell them you have serious concerns about the “trade” agreements being negotiated. And that these “trade” agreements are too important and too far reaching to be approved quickly and quietly.

FULL POST: Twenty years of experience with previous “trade” treaties and the recent leaks of draft language for the Trans-Pacific Partnership (TPP) make the case that the “trade” treaties currently in negotiation will not benefit the US economy, our workers, or our middle class. These treaties focus on and benefit multi-national corporations and investors, rather than trade and the public interest. (See my previous posts of 1/13, 1/8, 9/13/13, and 9/10/13 for more detail.)

The latest leak has been of the environmental provisions of the TPP. They lack mandated standards and have weak enforcement provisions. They are even weaker than the provisions in previous trade agreements, such as the North American Free Trade Agreement (NAFTA). [1]

Those arguing for Fast Track consideration of the TPP and other treaties by Congress (i.e., short timeframe, no amendments, and no filibuster) argue that treaties should be negotiated by the President and the Executive Branch (and not fiddled with by Congress) and that treaties are generally negotiated behind closed doors. [2] However, the current trade negotiations have included extensive involvement and input from corporate interests but virtually no input from the public; from advocates for workers, the environment, or ordinary citizens; or from Congress and other elected officials (other than the President). Furthermore, the Fast Track process is not necessary to pass trade agreements. President Clinton implemented more than 130 trade agreements without the Fast Track process. [3]

The growing resistance to Fast Track authority and these new “trade” agreements in Congress and among the public is fueled by growing data on the damaging impacts of the 20 year history of the North American Free Trade Agreement (NAFTA). The same claims are being made for the current trade treaties as were made for NAFTA: that they will promote economic growth, increase jobs, and reduce trade deficits or increase trade surpluses. And TPP has specifically been described as NAFTA on steroids.

When NAFTA was being promoted for approval by Congress in 1993, it was stated that it would expand our trade surplus with Mexico, thereby creating 200,000 US jobs in two years and a million in 5 years. However, the Mexican trade surplus ($2 billion in 1993) quickly turned into growing deficits (of $16 billion in 1995, $65 billion in 2008, and $50 billion in 2013). Our trade deficit with Mexico has totaled $1 trillion over the 20 year life of NAFTA.

With Canada, the other country in NAFTA, the story is similar: our trade deficit of $11 billion in 1993 grew to $78 billion in 2008 and $28 billion in 2013. (The dramatic drop in the deficit after 2008 is due to reduced imports because of our Great Recession.) [4]

It is estimated that NAFTA has eliminated almost 700,000 jobs in the US, with 60% of them being in manufacturing. Most of the workers who lost jobs have experienced a permanent loss of income; if they have found other jobs, they pay significantly less. [5] Many workers have experienced long-term unemployment (more than 6 months), which is at historically high levels. Numerous other workers have simply dropped out of the labor force. All of this has led to increases in the costs of government assistance programs, including unemployment benefits and food assistance. [6]

NAFTA established the principle that US corporations could move production out of the US but import the goods produced back into the US without any tariffs or other disincentives. This undermines the wages and benefits of American workers and the middle class. It increases job insecurity and weakens labor unions’ ability to negotiate because of the threat that jobs will be moved out of the US. The result has been stagnant wages for all but the richest Americans and, therefore, growing income inequality. In all three NAFTA countries, the US, Canada, and Mexico, wages and benefits for workers have not kept up with increased worker productivity over the last 20 years. [7]

Even Mexican workers have not experienced any significant increase in wages. An important reason for this is that the export of cheap, subsidized corn from the US to Mexico undermined the livelihoods of an estimated 2.4 million Mexican farmers. This displaced Mexican farmers and led to increased immigration (legal and illegal) to the US. Due to the abundant supply of desperate workers, it also pushed down wages in the maquiladora factory zone (the area just south of the US border). [8]

Although Mexico has experienced increased trade and some job growth under NAFTA, the jobs, even those in manufacturing, have been at low wages. The average Mexican manufacturing wage is only 18% of the US wage and that percentage has grown only slightly. The poverty rate in Mexico is 51%, down only slightly from the 52% when NAFTA went into effect. There has been an increase in the availability of consumer goods, but environmental protections have had mixed results at best. Disposal of US waste in Mexico has increased, including, for example, a 500% increase in US exports of highly toxic, spent lead-acid car batteries, with minimal control to ensure environmentally safe handling of them. [9]

Under NAFTA, US corporations have attempted to weaken Canadian regulations on a range of issues, including offshore oil drilling, fracking, pesticides, and drug patents. [10] Mexico and Canada have paid $350 million to foreign corporations for claims that their laws, rules, regulations, or other actions reduce current and expected profits.

Since NAFTA, the US has entered into trade agreements with Korea, China, and others. While the promise has always been growth in US jobs, our economy, and our trade balance, the result has typically been the opposite. Since the 2012 agreement with Korea, the US trade deficit with Korea has increased by $8.5 billion and an estimated 40,000 jobs have been lost. Our trade deficit with China has soared to $294 billion in 2013 from $83 billion in 2001 when China was permitted to join the World Trade Organization. [11]

The trade agreements of the past 20 years have cost our economy more than $1 trillion through increased trade deficits and close to a million jobs. They are key reasons that unemployment is high and the economic recovery is so weak. Furthermore, the mitigation provisions for these past trade agreements, such as retraining for workers who lost their jobs, have been woefully inadequate and ineffective.

I urge you to contact your elected officials in Washington and tell them you have serious concerns about the “trade” agreements being negotiated. And that these “trade” agreements are too important and too far reaching to be approved quickly and quietly. Full disclosure and debate of their provisions is what democracy requires.


[1]       Queally, J., 1/15/14, “Leaked TPP ‘Environment Chapter’ shows ‘Corporate Agenda Wins,’” Common Dreams (http://www.commondreams.org/headline/2014/01/15)

[2]       Boston Globe Editorial, 1/19/14, “Pacific, EU trade deals need up-or-down votes,” The Boston Globe

[3]       Johnson, D., 1/10/14, “New Fast-Track bill means higher trade deficits and lost jobs,” Campaign for America’s Future

[4]       US Census Bureau, retrieved 1/7/14, “U.S. trade in goods by country,” http://www.census.gov/foreign-trade/balance/

[5]       Johnson, D., 12/18/13, “Will we fast-track past the lessons of the NAFTA trade debacle?” Campaign for America’s Future (http://ourfuture.org/20131218/obama-administration-to-push-fast-track)

[6]       Folbre, N., 8/5/13, “The free-trade blues,” The New York Times

[7]       Faux, J., 1/1/14, “NAFTA, twenty years after: A disaster,” Huffington Post

[8]       Wallach, L., 12/30/13, “NAFTA at 20: ‘Record of damage’ to widen with ‘NAFTA-on-steroids’ TPP,” Global Trade Watch, Public citizen

[9]       Stevenson, M., 1/3/14, “20 years after NAFTA, a changed Mexico,” The Boston Globe from the Associated Press

[10]     Carter, Z., 12/8/13, , “Obama faces backlash over new corporate powers in secret trade deal,” The Huffington Post

[11]     Johnson, D., 12/18/13, see above

TRADE TREATIES NEED OPEN DEBATE, NOT FAST TRACK

ABSTRACT: Action in Congress on requiring Fast Track consideration of trade treaties is likely to happen soon. Two broad “trade” agreements are scheduled for Congressional action this year: the Trans-Pacific Partnership (TPP) with a dozen Pacific Rim countries and the Trans-Atlantic Free Trade Agreement (TAFTA) with the European Union (EU). Fast Track authority requires that Congress consider and act on a treaty in a short timeframe with no amendments or changes allowed and with no filibustering.

I urge you to email, call, write, and, if you can, meet with your member of Congress and your Senators and tell them you do not want them to approve Fast Track authority. These “trade” agreements are too important and too far reaching to be approved quickly and quietly.

Business groups are pushing hard for Fast Track consideration in Congress. They are supporters of the treaties, which are widely viewed as very favorable to corporate interests. The growing resistance to Fast Track authority is fueled in large part by:

  • Secrecy on the negotiations and agreement provisions, which breeds suspicion;
  • Concern that they benefit multi-national corporations at the expense of others; and
  • Growing data on the damaging impacts of 20 years with the North American Free Trade Agreement (NAFTA), on which these treaties are modeled.

The indirect effects of the past and these possible new “trade” agreements on the balance of power in employer-employee relations and in our political system, as well as on economic inequality, may be more significant than the direct effects, such as job losses. The TPP and the TAFTA, based on what is known about them, will likely benefit corporations and investors, while hurting US workers and citizens. Moreover, if approved, these treaties will be very difficult to change, as the consent of all the parties is required. At the least, a full discussion of their provisions, based on full disclosure, is warranted.

FULL POST: Action in Congress on requiring Fast Track consideration of trade treaties is likely to happen soon. President Obama would like to have Fast Track authority, formally known as Trade Promotion Authority, for two broad “trade” agreements that are scheduled for Congressional action this year: the Trans-Pacific Partnership (TPP) with a dozen Pacific Rim countries and the Trans-Atlantic Free Trade Agreement (TAFTA) [1] with the European Union (EU). (I put trade in quotes because these “trade” agreements, like NAFTA, go well beyond trade issues and cover a broad range of legal and regulatory issues. The provisions for reducing trade barriers and increasing trade are only a small part of the agreements.)

Fast Track authority requires that Congress consider and act on a treaty in a short timeframe with no amendments or changes allowed and with no filibustering. Fast Track authority was first used in 1974 and has been used on a number of occasions since then.

I urge you to email, call, write, and, if you can, meet with your member of Congress and your Senators and tell them you do not want them to approve Fast Track authority. [2] These “trade” agreements are too important and too far reaching to be approved quickly and quietly. Full disclosure and debate of the provisions of “trade” agreements is what democracy requires.

The Democratic and Republican leaders of the Senate Finance Committee, along with the Republican chairman of the House Ways and Means Committee, have reportedly reached an agreement on a Fast Track authority bill, although they have not yet released its details. The argument for Fast Track consideration of trade treaties is that it means other countries will be more likely to make concessions and reach agreement on the treaty if they are confident that the US Congress can’t change it.

Business groups, including the US Chamber of Commerce and the Business Roundtable, are pushing hard for Fast Track consideration in Congress. They are supporters of the treaties, which are widely viewed as very favorable to corporate interests, [3] and are presumably worried that debate in Congress and the public on the treaties would reduce their chances for approval.

There is significant opposition to granting Fast Track authority in Congress and outside of it. Nearly 200 members of the US House, mostly Democrats but some Republicans, have signed letters strongly questioning the granting of Fast Track authority for these treaties. [4]

The growing resistance to Fast Track authority for these new “trade” agreements in Congress and the public is fueled in large part by:

  • Secrecy on the negotiations and agreement provisions, which breeds suspicion;
  • Concern that they benefit multi-national corporations at the expense of local businesses, workers and citizens, and national sovereignty; and
  • Growing data on the damaging impacts of 20 years with the North American Free Trade Agreement (NAFTA), on which these treaties are modeled.

Both treaties are being negotiated in great secrecy. For the TPP, the Obama administration has deemed the negotiations classified information, restricting Congressional access to documents and banning discussion of the negotiations and treaty provisions with the press or the public. [5] In 2013, Senator Elizabeth Warren opposed the confirmation of the US Trade Representative because he refused to share any of TPP’s provisions. She noted the important need for transparency and public debate on the treaty. [6]

These treaties are seen by many advocates for health, labor, safety, environmental, and financial industry standards and regulations as a masquerade for a corporate power grab, designed to weaken regulation and run roughshod over workers’ and citizens’ interests. [7] These “trade” agreements would enable multi-national corporations to operate with weakened oversight by national governments, free of nations’ court systems, and with reduced consumer and citizen protections. Corporations would become supra-national entities and would answer only to a separate system of rules and courts, administered by new international tribunals. In essence, an international system, parallel to the United Nations system of international governance for nations, would be created for international governance of corporations – a United Multi-national Corporations system, if you will. (More on this in a subsequent post.)

The same claims are being made for these two trade treaties that were made for NAFTA: they will promote economic growth, reduce trade deficits or increase trade surpluses, and increase jobs. The actual experience with NAFTA is that it has done none of these things, which is probably the best indicator of the likely effects of these new trade treaties. And the TPP has specifically been described as NAFTA on steroids. (More on this in a subsequent post.)

The indirect effects of the past and these possible new “trade” agreements on the balance of power in employer-employee relations and in our political system, as well as on economic inequality, may be more significant than the direct effects, such as job losses. The corporations and investors who have been the winners in this globalization of trade and commerce can invest their winnings (i.e., profits) in campaign contributions, lobbying, and political strategies that ensure they are the victors in next round of “trade” agreements. [8]

Although President Obama recently described growing economic inequality in the US as a major issue, NAFTA has increased inequality and the new trade treaties are likely to as well. NAFTA and other recent “trade” agreements have provided benefits to corporations and investors globally, while hurting workers and the middle class in the US, and sometimes hurting workers in other countries. The TPP and the TAFTA, based on what is known about them, will similarly benefit corporations and investors, while hurting US workers and citizens. Moreover, if approved, these treaties will be very difficult to change, as the consent of all the parties is required. At the least, a full discussion of their provisions, based on full disclosure, is warranted.


 

[1]       Also known as the Trans-Atlantic Trade and Investment Partnership.

[2]       You can find contact information for your US Representative at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[3]       For more information see my previous posts, “Trade” Agreement Supersizes Corporate Power, 9/10/13, (https://lippittpolicyandpolitics.org/2013/09/10/trade-agreement-supersizes-corporate-power/) and “Trade” Agreements & Corporate Power, 9/13/13 (https://lippittpolicyandpolitics.org/2013/09/13/trade-agreements-corporate-power/).

[4]       Politi, J., 12/13/13, “US Senate deal sets up fierce trade battle,” Financial Times

[5]       Carter, Z., 12/8/13, , “Obama faces backlash over new corporate powers in secret trade deal,” The Huffington Post

[6]       Loth, R., 12/21/13, “Take trade agreement off fast track,” The Boston Globe

[7]       Todhunter, C., 10/4/13, “The US-EU Transatlantic Free Trade Agreement (TAFTA): Big business corporate power grab,” Global Research (http://www.globalresearch.ca/the-us-eu-transatlantic-free-trade-agreement-tafta-big-business-corporate-power-grab/5352885)

[8]       Folbre, N., 8/5/13, “The free-trade blues,” The New York Times

US CAPITALISM IS OUT OF CONTROL

ABSTRACT: Of all the developed countries, the United States has the most unequal distribution of income and wealth. 1928 and 2007 were the peak years for income and wealth inequality in the US. In the periods leading up to these two peaks, the wealthy invested and speculated in financial markets. Speculative bubbles were created. The middle class saw their incomes stagnate. This led to economic instability, the Great Depression of the 1930s, and the Great Recession of 2008.

So where should we look for an example of greater economic stability and equality? The answer is the United States after World War II from 1946 to 1978. So what do we need to do to return to greater economic stability and equality? We need to keep and encourage the creation of jobs that pay middle class wages and have benefits.

We need to change the rules of our economy so the gains of economic growth are more widely shared. Capitalism needs rules, otherwise it runs out of control. A well-functioning democracy can create and enforce appropriate rules (laws and regulations). But if the democratic process of electing officials and making laws and regulations is corrupted by money and lobbying from wealthy capitalists and their corporations, the appropriate rules won’t be in place and capitalism can run out of control.

Currently, the huge amounts of money being spent by wealthy capitalists and their corporations on elections and lobbying are determining the rules of our economy. Americans are losing faith in our democracy, which is our most precious gift and our most important legacy for future generations. What the powerful moneyed interests would like, is for us all to get so cynical about politics and government that we basically give up. But if we’re mobilized, if we’re energized, if we take citizenship to mean not simply voting, paying taxes, and showing up for jury duty, but actually participating actively and knowledgeably, we can make our democracy – and capitalism – work.

FULL POST: Of all the developed countries, the United States has the most unequal distribution of income and wealth. 1928 and 2007 were the peak years for income and wealth inequality in the US. [1] What happened a year after 1928? The Great Crash. And what happened a year after 2007? Another financial system crash. The parallels are breathtaking if you look at them carefully. [2]

In the periods leading up to these two peaks, the wealthy invested and speculated in financial markets. Both times, speculative bubbles were created. In both periods, the middle class saw their incomes stagnate, so they went deeper and deeper into debt to maintain their living standard, creating a debt bubble. These bubbles and the undermining of the middle class led to economic instability, the Great Depression of the 1930s, and the Great Recession of 2008.

Today, many in the middle class are one crisis away from being poor. If they lose a job, have a health crisis, or have a serious accident, they can find themselves suddenly in need of public assistance, which may be unemployment benefits, food stamps or food pantries, or subsidized health insurance from Medicaid. They may find themselves deep in debt and at risk of losing their home.

We seem to be close to the point where the middle class doesn’t have the purchasing power to keep the economy going and where the majority of people feel like the economic and political systems are rigged against them. There may be a tipping point, where the degree of inequality and economic insecurity actually threaten our economy, our society, and our democracy.

So where should we look for an example of greater economic stability and equality? The answer is the United States in the decades after World War II. From 1946 to 1978, the economy doubled in size, everybody’s income doubled, and inequality was low. Although the top income tax rate was as high as 91% and was never below 70%, we had greater annual economic growth than we’ve had since. With today’s top tax rate under 40%, anybody who says that we have to reduce taxes to foster economic growth, simply doesn’t know our own history.

So what do we need to do to return to greater economic stability and equality? We need to keep and encourage the creation of jobs that pay middle class wages and have benefits. We need to increase the minimum wage and we need to include labor standards in our trade treaties. We need to give workers and the middle class the voice and power to stand up to the wealthy and ensure that our economy works for all people, not just for the 1% at the top. We need to change the rules of our economy so the gains of economic growth are more widely shared. (For more detail see my post of 10/29/13 at https://lippittpolicyandpolitics.org/2013/10/29/lack-of-good-jobs-is-our-most-urgent-problem/. )

The rules of our economy are largely set by the federal government. Capitalism needs rules, otherwise it runs out of control, resulting in financial collapses; air and water that are harmful; cars that are unsafe; drugs and food are tainted; industrial accidents where oil wells blow out, chemical plants explode, and trains crash and burn; and so forth.

A well-functioning democracy can create and enforce appropriate rules (laws and regulations) that balance public safety (including environmental safety) and corporate profitability. But if the democratic process of electing officials and making laws and regulations is corrupted by money and lobbying from wealthy capitalists and their corporations, the appropriate rules won’t be in place and capitalism can run out of control.

Currently, the huge amounts of money being spent by wealthy capitalists and their corporations on elections and lobbying are determining the rules of our economy. They are using their economic power to gain political power. They are using this political power to entrench and enrich themselves economically and politically by obtaining laws and regulations that are tilted to benefit their self-interest. This is not a matter of partisan politics; both Democratic and Republican politicians and policy makers receive the money and do the bidding of these powerful economic elites.

Examples of laws and regulations that are tilted to favor capitalist interests include individual and corporate tax laws; bankruptcy laws; antitrust laws and enforcement; intellectual property laws on copyrights, patents, and trademarks; health and safety laws; campaign finance laws; laws and regulations for the financial industry; and priorities for government spending.

Americans are losing faith in our democracy, which is our most precious gift and our most important legacy for future generations. We are losing faith in equal opportunity and upward mobility as practical realities, and we’re feeling real anxiety over our lack of economic security.

Americans need to understand what’s at stake and push good people in government to do the right thing. If we don’t, eventually the moneyed interests will win because they are persistent and there won’t be anybody who can speak loudly enough to be heard over the bullhorn of their money.

What the powerful moneyed interests would like, is for us all to get so cynical about politics and government that we basically give up and say, “Okay, you want our democracy? Take it.” Then they win everything. But if we’re mobilized, if we’re energized, if we take citizenship to mean not simply voting, paying taxes, and showing up for jury duty, but actually participating actively and knowledgeably, we can make our democracy – and capitalism – work.

We can do it if we understand the nature of the problem. Time and again, in the early 1900s and again in the 1930s, for example, we have saved capitalism from its own excesses. We made sure that rules were in place to make capitalism work as it should: as an engine of prosperity for everyone and with a brake on the excesses of greed and power, as well as on the money that can otherwise corrupt our democratic process.

I encourage you to watch, listen to, or read the transcript of Bill Moyers’ show with Bob Reich (http://billmoyers.com/episode/full-show-inequality-for-all/). And I encourage you to go see Bob Reich’s movie, Inequality for All. It’s entertaining and informative. You can see the trailer for the movie, get lots more information, and find opportunities to take action at http://inequalityforall.com/.


[1]       The latest data appear to show that inequality was even greater in 2012 than 2007 as the great majority of the benefits of our weak economic recovery are going to the richest people. For more detail, see my post of 9/27/13 at https://lippittpolicyandpolitics.org/2013/09/27/whats-up-with-the-economic-recovery/.

[2]       Moyers, B., with Reich, R., 9/20/13, “Inequality for all,” http://billmoyers.com/episode/full-show-inequality-for-all/ (This post is a summary of this Bill Moyers show. You can view, listen to, or read the transcript of it at the link provided.)

LACK OF GOOD JOBS IS OUR MOST URGENT PROBLEM

ABSTRACT: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term. The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year. Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. Workers at Walmart, the largest employer in the US, are in a similar situation. These very profitable corporations can afford to raise their workers’ wages to $15 an hour – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. We undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed.

The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making.

FULL POST: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term – since 2010 roughly 40% of those unemployed and actively looking for work have been unemployed for more than 6 months. This is triple the rate of long-term unemployment in the period from 2000 – 2007. [1]

The official unemployment rate is 7.2% based on those who are actively looking for a job. It would be significantly higher, well over 10%, if those who have given up looking were included. And higher still if the under-employed were included – those working part-time who would like to be working full-time and those who are working at jobs for which they are over-qualified.

The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs. (See post of 9/27/13 for more detail.) High unemployment and low wage jobs are key factors in our slow economic recovery (consumers’ lack purchasing power), in the government’s budget deficit (reduced tax revenues), and in growing inequality (95% of the economic gains during the recovery have gone to the richest 1%). As a result, income and wealth inequality have increased to levels not seen since the 1920s.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. Two-thirds of them are adults, most of them bring home at least half of the family’s income, and a quarter of them have children. Only 13% get health insurance through their employers.

As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year; much of it is for health care, but also food assistance and other economic supports. [2] You can watch a 2 minute video about this, which includes a recording of the McDonald’s help line telling a 10-year employee with 2 children to access food stamps and Medicaid, at
http://lowpayisnotok.org/mcvideo/?utm_campaign=LowPay&utm_medium=email&utm_source=mcvideo-r.

Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. For example, McDonald’s has 700,000 employees. They are estimated to get $1.2 billion a year in taxpayer funded benefits. McDonald’s is very profitable, making $5.5 billion a year and paying its CEO $13.8 million. It has just purchased a $35 million luxury jet for its executives, which costs at least $2,400 an hour to operate.

Workers at Walmart, the largest employer in the US, are in a similar situation. They make an average of $8.80 an hour. When General Motors was the largest employer in the 1950s, it paid its workers about $50 to $60 an hour (adjusted for inflation). As with the fast food workers, we taxpayers are supporting Walmart workers with multiple types of public assistance. [3]

These big, profitable corporations operate with a business model that uses low paid and part-time workers, typically without benefits, who are, therefore, unable to afford the necessities of life. This leaves taxpayers to pick up the tab for the public benefits they need. These very profitable corporations can afford to raise their workers’ wages to $15 an hour (see post of 9/8/13 for more detail)  – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

Nationally, the typical workers’ wages, adjusted for inflation, have barely increased over the last 30 years. (See post of 9/2/13 for more detail.) The typical male worker in 1978 was making around $48,000 (adjusted for inflation), while the average person in the top 1% earned $390,000. By 2010, the typical male workers’ pay had gone down, while the person in the 1% had their pay more than double. Today, the richest 400 Americans have more wealth than the bottom half of the country, 150 million people, combined.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Workers are not even receiving the benefits of their increased productivity. As a result, we are losing the middle class, equal opportunity, and upward mobility. This is undermining our economy and our democracy.

In the first 4 years of the current recovery, the richest 1% of Americans took home 95% of the income gains. In stark contrast, between 1946 and 1978, as the economy doubled in size, everyone’s income doubled as well.

Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. Income gains started going to the richest Americans and people in the middle, the typical worker, saw their wages stagnate. Part of the problem is that we didn’t adapt to globalization and technological change. We didn’t change public policies. We didn’t change the rules of our economy to continue to provide opportunity, upward mobility, and ensure that economic and productivity growth were broadly shared. We could have done so, but we didn’t. [4]

Among other things, we let the minimum wage fall behind inflation. If it had kept up with inflation, the national minimum wage would be $10.40 today instead of $7.25. If productivity improvement was included, it would be at least $15 an hour. We deregulated the financial system, both domestically and internationally, favoring investors and corporations over workers. And we didn’t include labor standards in trade treaties. Meanwhile, we cut tax rates on high incomes and wealth substantially.

If we had a democracy that was working for the people, the average citizen and worker would have the voice and power to see that their interests and the greater good were served. Instead, we undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed – without sacrificing efficiency or innovation. The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making. This failure may put their political careers at risk because every poll shows that the public is much more concerned about jobs and the economy than any other issue, including the deficit.


[1]       Woolhouse, M., 10/22/13, “Long search finally ends,” The Boston Globe

[2]       Johnston, K., 10/16/13, “Public aid crucial to fastfood workers,” The Boston Globe

[3]       Moyers, B. with Reich, R., 9/20/13, “Inequality for all,” http://billmoyers.com/episode/full-show-inequality-for-all/

[4]       Moyers, B. with Reich, R., 9/20/13, see above

WHAT’S UP WITH THE ECONOMIC RECOVERY?

ABSTRACT: According to economists, our economy has been in a recovery for 4 years. However, most people’s income and wealth are down. Inequality of both income and wealth are up. The stock market and corporate profits are up, but unemployment and under-employment are high, and the poverty rate and economic insecurity are up.

Government policy does affect all of these. The policy changes that occurred after the Great Depression reduced income and wealth inequality until the 1970s and addressed many of these economic issues as well. However, the federal government’s actions since the collapse in 2008 have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. They are seen as unfair and as fostering a plutocracy instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.

FULL POST: According to economists, our economy has been in a recovery for 4 years; the Great Recession officially ended in June 2009. However, most people’s income and wealth are down; they have not recovered to their pre-recession levels. Inequality of both income and wealth are up because the income and wealth of the rich have recovered much more quickly than those of middle and lower income households. The stock market and corporate profits are up – stocks have more than doubled in value and have reached new record highs.

Average household income (adjusted for inflation) is $3,400 below what it was in December 2007, before the Great Recession. It is currently at $52,100, up $1,400 from its low point in August 2011 but recovering very slowly. [1]

Income inequality is up dramatically. The income gap between the richest 1% (incomes above $394,000) and the other 99% is the widest it’s been since 1927. During the 4 years of the recovery, the top 1% have seen their incomes grow by 31% while the 99% have seen their incomes grow by only 0.4%. In other words, the richest 1% of Americans have recovered almost all their income losses from the Great Recession, while all the rest of us have barely started to recover. This is a continuation of the trend of the last 20 years, where the top 1% have gotten two-thirds of all the growth in incomes. [2] A similar picture is seen if one looks at the top 10%, who now have over half of all income, a higher level than at any time since 1917 when record keeping began. (See posts of 9/2/13 and 11/13/11 for more information.)

Government policy does affect income inequality. The policy changes that occurred “after the Great Depression during the New Deal … reduced income concentration until the 1970s [and addressed many other economic issues as well]. … The policy changes [after] the Great Recession … are not negligible but are modest … Therefore, it seems unlikely that US income concentration will fall much in the coming years.” [3] Government policy also affects the recovery more broadly. See posts of 9/13/12, 5/15/12, and 3/31/12 for more information.

The picture is similar when household wealth is studied. In the financial collapse, $16 trillion of household wealth was lost. While $14.7 trillion of that has now been regained – 91% of the loss – the wealthy have regained most if not all of their wealth while the average household has regained only 45% of its wealth. In the 4 years of the recovery, two-thirds of recovered wealth has been in the value of stocks, which are at record highs. However, 80% of stocks are owned by the wealthiest 10% of households. Home values, which are the biggest component of middle and lower-income households’ wealth, are still 30% below their peak values. The average household wealth of $540,000 is roughly $100,000 below its peak. [4][5]

The poverty rate is up – to 15%, meaning 46.5 million people are living at or below the poverty line (yearly income of $23,492 for a family of four). This is 2.5 percentage points or 20% higher than in 2007, before the Great Recession, meaning that 7.8 million people have fallen into poverty in the last 5 years. [6]

Unemployment is high, although it has been declining. Furthermore, many of those who are working are under-employed – working part-time when they would like to be full-time or working at jobs that don’t require the training and experience they have. Many workers who lost a job but have a new one, are earning much less than they were. So far in 2013, 61% of new jobs have been in low-wage industries and 77% have been part-time. [7] (See post of 9/2/13 for more information.)

Many people – over a third of the working age population – have simply dropped out of the job market because jobs, especially good jobs with good wages are hard to find. Only 59% of the working age population is employed. [8] Despite workers’ significant increases in productivity (75% over the last 30 years), workers’ wages have only increased by 5% over those 30 years. The rewards of their increased productivity have instead gone to corporate profits and executives’ pay.

Economic insecurity is up. Four out of five adults in the US will experience economic insecurity in their lifetimes, Economic insecurity is defined as experiencing unemployment, relying on government assistance for at least a year, or having income below one and a half times the poverty line. [9]

The federal government’s actions since the collapse in 2008, which was due to reckless behavior by the big financial corporations, have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in. The policies that have contributed to this included bailouts and low interest loans for the financial corporations and tax policies that over 30 years have dramatically reduced the taxes paid by corporations and the wealthy. Meanwhile, the value of the minimum wage has been significantly reduced by inflation. Cuts in government spending have resulted in lost jobs in both the public and private sectors. [10]

Studies have shown that the top personal income tax rate could return to the level it was in 1980 (70% instead of today’s 39.6%) without any negative effects on the overall economy. (See post of 12/29/12 for more information.) History also shows that corporate tax rates, which are at a 60 year low, can also be increased significantly without harmful effects. [11]

In summary, stock prices, corporate profits, poverty, and inequality of income and wealth are up. Income and wealth for the typical American household are still down from what they were before the Great Recession, despite 4 years of “recovery”. Economic insecurity is up, social mobility is down, and unemployment and under-employment are both high.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. [12] This is having a demoralizing effect on Americans and building resentment of what is increasingly seen as unfair domination of economic and political life by the wealthy, in other words as fostering a plutocracy [13] instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.


[1]       Pear, R., 8/22/13, “Median income up, but below 2009 levels,” The Boston Globe (from The New York Times)

[2]       Saez, E., 9/3/13, “Striking it richer: The evolution of top incomes in the United States,” University of California, Berkeley, Department of Economics (http://elsa.berkeley.edu/~saez/saez-UStopincomes-2012.pdf)

[3]       Saez, E., 9/3/13, see above, p. 1

[4]       Federal Reserve Bank of St. Louis, May 2013, “How Much Household Wealth Has Been Recovered?” Section of 2012 Annual Report, pages 14-15 (http://www.stlouisfed.org/publications/ar/2012/pdfs/ar12_complete.pdf)

[5]       Associated Press, 5/31/13, “Report paints darker picture of US wealth,” The Boston Globe

[6]       US Census Bureau, 9/17/13, “Income, poverty and health insurance coverage in the United States: 2012”

[7]       Wiseman, P., 8/5/13, “Most new jobs in July were low paying, part time,” The Boston Globe (from the Associated Press)

[8]       Hightower, J., June 2013, “How bad is the jobs crisis?” The Hightower Lowdown

[9]       Yen, H., 7/29/13, “Data show widening future struggle for Americans,” The Boston Globe (from the Associated Press)

[10]     Eskow, R., 9/11/13, “Recovery for the Rich, Recession for the Rest,” Campaign for America’s Future, http://ourfuture.org/20130911/recovery-for-the-rich-recession-for-the-rest

[11]     Eskow, R., 9/11/13, see above

[12]     Krugman, P., 9/12/13, “Rich man’s recovery,” The New York Times

[13]     A plutocracy is a society ruled and dominated by the small minority of the wealthiest citizens. Wikipedia (http://en.wikipedia.org/wiki/Plutocracy)

LABOR DAY AND THE MIDDLE CLASS

ABSTRACT: Labor Day is a time to celebrate the contributions working people make to our country. But with unemployment still high, inequality on the uptick, and the middle class shrinking and under serious financial strain, many working families just don’t have much to celebrate. For 30 years, wages for the middle and lower income workers have barely kept up with inflation and have not kept up with their significant productivity increases. This means that they aren’t being paid fairly for what they produce. From 1979 to 2012, a typical worker’s wages grew only 5.0% despite a 74.5% increase in productivity.

Efforts are building at the federal level and in a number of states to raise the minimum wage, which has not kept pace with inflation or productivity growth. Low wage workers at fast food chains, big box retailers, and elsewhere have been organizing rallies and strikes to protest low wages and poor working conditions.

President Bill Clinton’s Labor Secretary, Robert Reich, has put together a short video (under 3 minutes) that explains how we can turn things around. (http://front.moveon.org/how-workers-can-get-a-fair-shake-a-labor-day-message-from-robert-reich/#.UiSXAknD_IU)

Jobs with wages that support a middle class life are essential to the well-being of individuals, families, our economy, and our country. Such jobs have been disappearing for 30 years. We need to reverse this trend. And we can, through our actions as citizens and through the policies of our government.

FULL POST: Labor Day is a time to celebrate the contributions working people make to our country. They power our economy both through what they produce and what they consume. (Consumer spending is about two-thirds of economic activity.)

But with unemployment still high, inequality on the uptick, and the middle class shrinking and under serious financial strain, many working families just don’t have much to celebrate. The recovery is weak and the jobs that are being created are largely low wage jobs. So far in 2013, 61% of new jobs have been in low-wage industries and 77% have been part-time. [1] Many of the laid off workers who are getting jobs are earning much less than they used to and many are only working part-time; many of them, especially older workers, are experiencing long-term unemployment with unemployment benefits running out and the loss of health insurance. [2]

For 30 years, wages for the middle and lower income workers have barely kept up with inflation and have not kept up with their significant productivity increases. This means that they aren’t being paid fairly for what they produce. Their increases in productivity are not rewarding them, but instead are going to corporate profits, executive pay, and shareholders. Between 2007 and 2012, wages fell for the 70% of workers at the bottom of the income distribution, despite productivity growth of 7.7%. From 1979 to 2012, a typical worker’s wages grew only 5.0% despite a 74.5% increase in productivity. [3] If the minimum wage had kept pace with productivity growth since the 1960s, it would be $16.54 instead of $7.25. [4]

Since 2008, corporate profits are up 25% – 30% while wages have fallen to their lowest portion of corporate revenue since the 1940s. Part of this is due to the continuing trend of employers changing full-time jobs with benefits into part-time or contracted jobs, typically without benefits. [5]

Efforts are building at the federal level and in a number of states to raise the minimum wage, which has not kept pace with inflation or productivity growth. More than 7 million children live in homes whose income would increase if we raised the minimum wage and more than 10 million Americans, including 4% of full-time workers, qualify as the “working poor.” That means they spent at least half the year working yet still live below the poverty line ($19,530 for a family of three, which might be a single parent and two children). [6]

Low wage workers at fast food chains, big box retailers, and elsewhere have been organizing rallies and strikes to protest low wages and poor working conditions.[7] If you didn’t see The Daily Show’s piece on fast food workers and the minimum wage (with John Oliver subbing for Jon Stewart) it’s, as usual, both informative and entertaining. It’s at: http://www.thedailyshow.com/watch/thu-august-1-2013/can-t-you-at-least-wait-until-jon-stewart-gets-back. (It’s 10 minutes long with short ads at the beginning and in two breaks.)

President Bill Clinton’s Labor Secretary, Robert Reich, has put together a short video (under 3 minutes) that explains how we can turn things around. It lists 6 policies that are needed to make sure workers’ get a fair return for their labor and that would support the middle class. It’s at: http://front.moveon.org/how-workers-can-get-a-fair-shake-a-labor-day-message-from-robert-reich/#.UiSXAknD_IU.

As an initial step, the site includes a petition you can sign that calls on two very profitable companies – McDonald’s and Walmart – to pay their workers fair wages. Walmart, for example, pays its typical employee less than $9 an hour and many of its jobs are part-time, while its profits in 2013 were $28 billion. Most people who work for big-box retailers like Walmart, as well as those who work in the fast-food industry, are adults, not teenagers. They are responsible for bringing home a significant share of their family’s income and they should be paid enough to lift them and their families out of poverty.

When Martin Luther King, Jr., led the March to Washington for Jobs and Justice fifty years ago, one of the objectives was to raise the minimum wage to $2 an hour. $2 an hour in 1963, adjusted for inflation, comes to over $15 an hour today. (You can read more on this and many other topics at Bob Reich’s excellent blog at: http://robertreich.org.)

Jobs with wages that support a middle class life are essential to the well-being of individuals, families, our economy, and our country. Such jobs have been disappearing for 30 years. We need to reverse this trend. Increasing the minimum wage is one step. Increasing investments in human capital are another, including high quality, affordable early care and education, good schools, and affordable, quality post-secondary education. Universal access to good health care and steps to increase compensation and conditions for workers here in the U.S., as well as around the globalized world (for example, through trade treaties), are essential. We can affect these matters through our actions as citizens and through the policies of our government.


[1]       Wiseman, P., 8/5/13, “Most new jobs in July were low paying, part time,” The Boston Globe (from the Associated Press)

[2]       Winerip, M., 8/26/13, “Set back by recession, shut out of rebound,” The New York Times

[3]       Mishel, L., & Shierholz, H., 8/21/13, “A decade of flat wages: The key barrier to shared prosperity and a rising middle class,” Economic Policy Institute

[5]       Garson, B., 8/20/13, “How corporate America used the Great Recession to turn good jobs into bad ones,” TomDispatch

[6]       Eskow, R.J., 8/26/13, see above

[7]       Johnston, K., 8/27/13, “Local rally part of nationwide call,” The Boston Globe

GOVERNMENT AUSTERITY DEBUNKED

ABSTRACT: The argument for government austerity was largely built on two economic theories, both of which have been debunked recently by academia and reality. First was the theory that if government debt exceeded 90% of economic activity, then economic growth would be sharply lower. The second was that cutting spending in a depressed economy would create jobs.

 

The study the first was based on was dramatically discredited when an error was discovered in the Excel spreadsheet used to calculate its findings. Furthermore, the link highlighted between government debt and slow economic growth does not indicate that government debt causes slow growth; it could just as likely be the reverse.

The second theory was based on another academic study that was refuted by a 2010 study by the International Monetary Fund, which used better data. And finally, real life experiences in the US and Europe have not borne out what the austerity advocates predicted or promised.

Despite this debunking of the rationales for austerity, there hasn’t been any change in policies or political rhetoric in the US. The US austerity movement appears to be driven by small government ideologues who are using the economic crisis as an opportunity to push for cuts in social programs they’ve always opposed. There also appears to be an issue of class hiding behind austerity advocacy. While the years since the Great Depression and of austerity policies in Washington have been hard on the middle and lower classes, for the well off they’ve been pretty good. So, perhaps it shouldn’t be a surprise that the wealthy and political elites keep pushing austerity policies despite the lack of support from theory or reality.

FULL POST: The argument for government austerity – reducing the deficit by cutting spending and perhaps raising taxes – was largely built on two economic theories, both of which have been debunked recently by academia and reality. First was the theory that if government debt exceeded 90% of economic activity (measured by gross domestic product [GDP]), then economic growth would be sharply lower. The second was that cutting spending in a depressed economy would create jobs.

The first, on the danger of government debt, was based on a 2010 study by two Harvard economists, Reinhart and Rogoff, “Growth in a Time of Debt.” Despite significant controversy about it, its finding of a tipping point for reduced economic growth when government debt hit 90% of GDP was presented as fact by politicians and media arguing for the need for austerity. [1]

This study was dramatically discredited when an error was discovered by Thomas Herndon, a Ph.D. student at the University of Massachusetts, Amherst, in the Excel spreadsheet Reinhart and Rogoff used to calculate their findings. An error in one of their formulas had excluded data from Canada, New Zealand, and Australia, all of which had experienced strong economic growth in periods of high government debt. [2] (Reinhart and Rogoff have acknowledged the error.) This explained why other researchers, using similar data, hadn’t been able to replicate their findings. As Reinhart and Rogoff’s work was scrutinized, it was also criticized for omitting data and using questionable statistical procedures.

Furthermore, the link they highlighted between government debt and slow economic growth does not indicate that government debt causes slow growth; it could just as likely be the reverse, that slow growth leads to higher government debt. Indeed, the latter is clearly what happened in Japan in the early 1990s when government debt grew after the economy collapsed. [3]

The second theory, that cutting spending in a depressed economy would create jobs, was based on another academic study. It was refuted by a 2010 study by the International Monetary Fund (IMF), which used better data. The IMF study found that austerity reduced job growth instead of accelerating it as the original study and austerity promoters claimed. [4]

Finally, real life experiences in the US and Europe have not borne out what the austerity advocates predicted or promised. In the US, government debt and a bit of stimulus did not produce high interest rates and a shrinking economy. Most recently, the austerity measures adopted in March – namely the sequester’s budget cuts – are clearly causing jobs to be cut, with no signs of resultant job creation. Meanwhile, most of Europe is in recession despite consistent application of the austerity medicine for the last four years.

Despite this debunking of the rationales for austerity, there hasn’t been any change in policies or political rhetoric in the US, and little in Europe. This suggests that the austerity movement is not based on research and reality, but on ideology.

The US austerity movement appears to be driven by small government ideologues, given that the push for budget cuts continues unabated. These ideologues are using the economic crisis as an opportunity to push for cuts in social programs they’ve always opposed. They’ve seized on the austerity theories from academia as justification for their actions, and aren’t letting go of them even when they have been soundly discredited. [5]

There also appears to be an issue of class hiding behind austerity advocacy. The wealthy in the US regard the deficit as the most important problem we face and favor solving it by cutting spending on health care and Social Security. The middle and lower classes, although they see the deficit as a problem, view unemployment as a more important problem and want to see spending on health care and Social Security increase. [6] Given the political power of the wealthy elites, it’s not surprising to see policy bending to their preferences. While the years since the Great Depression and of austerity policies in Washington have been hard on the middle and lower classes (high unemployment, incomes that aren’t keeping up with inflation, home values that haven’t recovered to 2008 levels), for the well off they’ve been pretty good (incomes growing faster than inflation, corporate profits and stock prices surging). So, perhaps it shouldn’t be a surprise that the wealthy and political elites keep pushing austerity policies despite the lack of support from theory or reality.


 

[1]       Krugman, P., 4/18/13, “The Excel depression,” The New York Times

[2]       Roose, K., 4/18/13, “Meet the 28-year-old grad student who just shook the global austerity movement,” Daily Intelligencer

[3]       Krugman, P., 4/18/12, see above

[4]       Krugman, P., 5/3/13, “Playing whack-a-mole with expansionary austerity,” The New York Times

[5]       Editorial, 5/5/13, “Blame ideologues, not economists for failed ‘austerity’ policies,” The Boston Globe

[6]       Krugman, P., 4/15/13, “The 1 percent’s solution,” The New York Times

REDUCING INTEREST ON STUDENT LOANS

ABSTRACT: The interest rate on new federal student loans is scheduled to increase from 3.4% to 6.8% in July. Senator Elizabeth Warren (MA) has introduced legislation to give students the same interest rate that the big bank corporations get when they borrow from the Federal Reserve: 0.75%. Warren’s bill highlights the enormous advantages and preferences the federal government gives to large corporations and the contrast with what the government does (or doesn’t do) for students, their families, and 99% of taxpayers in general.

 Student debt exceeds $1 trillion and is a substantial drag on the economy. Some financial experts have warned that the student debt problem has parallels to the housing mortgage loan crisis.

You can become a citizen co-sponsor of Warren’s Bank on Students Loan Fairness Act at http://my.elizabethwarren.com/page/s/studentloans?source=20130516em.

FULL POST: The interest rate on new federal student loans is scheduled to increase from 3.4% to 6.8% in July. Senator Elizabeth Warren (MA) has introduced legislation to give students the same interest rate that the big bank corporations get when they borrow from the Federal Reserve: 0.75%.

Senator Warren’s bill in the Senate (her first) and Representative Tierney’s companion bill in the House would have the Federal Reserve make funds available to the Department of Education for student loans at this low rate for one year, to give Congress time to find a long-term solution to the student debt problem. As she writes, “If the government can float huge sums of money to large financial institutions at low interest rates to grow the economy, surely it can float the money necessary to fund our students, keep us competitive, and grow our middle class.” [1]

In addition to providing some relief to students, Warren’s bill highlights the enormous advantages and preferences the federal government gives to large corporations, in this case the large banks (who crashed our economy). It starkly draws a contrast with what the government does (or doesn’t do) for students, their families, and 99% of taxpayers in general, including homeowners who got little help while the large financial corporations involved with the housing collapse got bailed out.

At a time when the federal government can borrow money at 0.25% for 2 years, under 1% for 5 years, at 2% for 10 years, and roughly 3% for 30 years, [2] it hardly seems fair to be charging students even 3.4%, let alone 6.8%.

Student debt exceeds $1 trillion, which is more than all credit card debt. It is a substantial drag on the economy. (See post of 6/6/12 for more detail.) It depresses spending by students and their families. Because consumer spending is roughly two-thirds of our economic activity, depressed consumer spending slows our economic recovery. And if the default rate on student loans grows, which seems likely given that many students are having a very hard time finding jobs, let alone ones with good pay, the impact on our economy, government, and financial institutions could be significant. That’s why some financial experts have warned that the student debt problem has parallels to the housing mortgage loan crisis. [3]

You can become a citizen co-sponsor of Warren’s Bank on Students Loan Fairness Act at http://my.elizabethwarren.com/page/s/studentloans?source=20130516em.


[1]       Warren, E., 5/16/13, “If it’s good enough for the banks, it’s good enough for students,” Elizabeth Warren for Senate Newsletter

[2]       Bloomberg, 5/17/13, “United States Government Bonds, US Treasury yields,” retrieved from the Internet at http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

[3]       Zumbrun, J., & Torres, C., 5/7/13, “Bankers warn Fed of farm, student loan bubbles echoing subprime,” Bloomberg

SOCIAL SECURITY AND CHAINED CPI

ABSTRACT: In his federal government budget, President Obama has proposed cutting future Social Security benefits. He has done so in a way that is probably meant to obscure this fact. The Social Security Administration estimates that the result would be a 5% cut in benefits over every 12 year period.

It would not reduce the annual deficit, because SS has its own, dedicated funding stream. Social Security (SS) does not have a major funding problem; its shortfall 20 years from now is easily remedied.

Therefore, it seems that the only reason President Obama is proposing this cut in SS benefits is to offer a political olive branch to Republicans who want to cut SS because they are ideologically opposed to it.

An average 77 year old is receiving $23,832 per year from SS. If chained CPI had been used over the last 12 years, this person would be receiving $22,560 instead. Despite the very modest level of income that SS provides, one-third of seniors rely on SS for at least 90% of their income and another third for over 50% of their income.

The use of chained CPI as the government’s new, official measure of inflation will also, over time, reduce low income families’ eligibility for benefits and push low and middle income taxpayers into higher income tax rate brackets. Thus, it will disproportionately hit low and moderate income families. This would be morally and ethically questionable in the best of times, but with low and middle income families still suffering from the effects of the Great Recession, and income and wealth inequality at levels unseen for at least 80 years, this is unconscionable.

I urge you to contact the President, your Senators, and your Congressperson in the House of Representatives and ask them to oppose this change – or to explain why they support it.

FULL POST: In his federal government budget, President Obama has proposed cutting future Social Security benefits. He has done so in a way that is probably meant to obscure this fact or at least muddy the waters so his proposal isn’t describe as a benefit reduction.

Obama has proposed that the annual inflation adjustment for Social Security (SS) benefits be calculated differently. Instead of using the current Consumer Price Index (CPI), he proposes using a figure called the “chained CPI.” [1] It gives a lower estimate of inflation than CPI, so benefits would increase more slowly. The Social Security Administration estimates that the result would be a 5% reduction in benefits over every 12 year period.

This would cut total SS payments by $10 – $20 billion per year over the next 10 years. However, it would not reduce the annual deficit (which is roughly $800 billion), because SS has its own, dedicated funding stream and is not part of the regular federal budget. Furthermore, SS does not have a major funding problem; its shortfall 20 years from now is easily remedied by other steps that don’t reduce future payments to retirees. (See posts of 1/7/13 and 12/4/11 for more details.)

Therefore, it seems that the only reason President Obama is proposing this cut in SS benefits is to offer a political olive branch to Republicans who want to cut SS because they are ideologically opposed to it.

An average 77 year old is receiving $23,832 per year from SS. If chained CPI had been used over the last 12 years, this person would be receiving $22,560 instead, $1,272 less or a little over a 5% reduction. [2]

Despite the very modest level of income that SS provides, one-third of seniors rely on SS for at least 90% of their income and another third for over 50% of their income. Chained CPI won’t keep up with the inflation that seniors actually experience, given the high portions of their incomes that go for the necessities of food and health care. [3]

And if that isn’t bad enough, remember that SS was meant to be one leg of a three legged stool of retirement security that included employer pension plans and personal savings. Employer pensions have disappeared for most workers and have, at best, been turned into personal savings plans, such as 401ks, where workers have all the risk, just like other personal savings. Given this, now is not the time to be cutting SS, the only guaranteed retirement benefit left in what is now a much less stable and riskier two legged stool.

The use of chained CPI as the government’s new, official measure of inflation will also, over time, reduce low income families’ eligibility for benefits and push low and middle income taxpayers into higher income tax rate brackets. For example, the federal poverty rate is adjusted annually for inflation. Using chained CPI, it will rise more slowly and, in the future, fewer families will fall below the poverty line, which is used to determine eligibility for programs from Head Start to health care, food, and heating assistance. The federal income tax brackets are also adjusted annually for inflation. With the cut off amounts for higher income tax rate brackets rising more slowly, more taxpayers will fall into higher brackets, increasing their income tax. This doesn’t affect the wealthy, of course, because they are already in the top bracket. [4]

The bottom line is that this change in the measure of inflation that is used to calculate Social Security benefits, eligibility for many anti-poverty programs, and income tax rate brackets will disproportionately hit low and moderate income families. This would be morally and ethically questionable in the best of times, but with low and middle income families still suffering from the effects of the Great Recession, and income and wealth inequality at levels unseen for at least 80 years, this is unconscionable.

In reality, this is a backdoor way to cut benefits for SS recipients and low income families, and to have low and middle income taxpayers pay more in income taxes – without having to say that’s what you’re doing. Obfuscation is the name of this game.

I urge you to contact the President, your Senators, and your Congressperson in the House of Representatives and ask them to oppose this change – or to explain why they support it.


 

[1]       Chained CPI assumes that as the prices of goods and services rise, consumers substitute less costly alternatives. For example, if gas prices rise, consumers use their cars less or buy (usually smaller) cars that get better gas mileage. Or if the price of beef goes up, they buy less beef and more chicken or less meat overall. Or if the price of heating oil goes up, consumers turn down the heat and use electric space heaters to heat only the rooms in which they spend time. First, this sounds, in many cases, like a decline in one’s standard of living or quality of life. Second, in some cases buying a cheaper substitute isn’t really an option. When the cost of health insurance and health care goes up, there often isn’t a way to buy a less costly alternative. And for seniors, this is a big part of their budget.

[2]       Matthews, D., 12/11/12, “Everything you need to know about Chained CPI in one post,” The Washington Post

[3]       Warren, E., 4/10/13, Newsletter from Senator Elizabeth Warren

[4]       Ohlemacher, S., 4/8/13, “Obama plan hits seniors, low-income taxpayers,” Associated Press (in the Reading Daily Times Chronicle)

CUTTING SPENDING TO REDUCE THE DEFICIT Part 2

ABSTRACT: Medicare and Medicaid do present significant funding challenges. This is because they reflect the costs of our health care system, which spends 2 ½ times what other advanced economies spend on average – and our health outcomes are worse. Obamacare takes initial steps to make our whole health care system more cost effective. One proposal to save money in Medicare is to raise the age at which one is eligible for coverage from 65 to say 67. This would save only $13 billion per year over 10 years and would only shift the cost for health insurance somewhere else.

Cuts to Medicaid mean that fewer low income individuals, primarily low income children and seniors, would have health insurance.

It is unfair and unnecessary to cut services and benefits for low income families and seniors when other options for reducing the deficit are available.

FULL POST: Medicare and Medicaid do present significant funding challenges. This is because they reflect the costs of our health care system, which spends over $7,500 per person per year. This is 2 ½ times what other advanced economies spend on average – and our health outcomes are worse. (See post of 12/9/11 for more details.)

The real issue is the need to make our whole health care system more cost effective. Obamacare takes initial steps to do just that. It includes cuts in payments to Medicare health insurers and health care providers of $700 billion, requiring them to be more efficient, but not cutting any benefits to seniors. Nonetheless, during the 2012 campaigns, Republicans attacked this as a cut to Medicare, despite the fact that their Vice Presidential candidate, Paul Ryan, the chairman of the House Budget Committee, had included these cuts in his budget the previous two years. Ironically, Republicans have also taken steps to eliminate the cost control board created by Obamacare that is charged with limiting the growth of Medicare spending. [1]

President Obama has continued his efforts to reduce Medicare costs by proposing giving Medicare the right to negotiate with drug makers for lower prices. [2] The Veterans Administration and large health insurers already do this and save significant amounts of money, but President Bush’s Medicare drug benefit prohibited Medicare from doing so, providing a windfall to the pharmaceutical corporations.

Another proposal to save money in Medicare is to raise the age at which one is eligible for coverage from 65 to say 67 and increase premiums for high income recipients. The Congressional Budget Office reviewed these proposals and concluded that they would save only $13 billion per year over 10 years. Moreover, increasing the eligibility age would only shift the cost for health insurance somewhere else and would leave some people without health insurance.

Cuts to Medicaid mean that fewer low income individuals would have health insurance or that their benefits would be cut. Medicaid beneficiaries are primarily low income children and seniors, with Medicaid paying for many seniors’ nursing home care. An expansion of Medicaid is an essential part of reducing the number of Americans without health insurance under Obamacare.

It is unfair and unnecessary to cut services and benefits for low income families and seniors when other options for reducing the deficit are available. Despite our riches, the US is less generous in its benefits for seniors and low income families than other countries with advanced economies. Surely, we can find the will and a way to maintain, if not improve, our benefits for these members of our society.


[1]       New York Times editorial, 11/18/12,  “A bad idea resurfaces,” The New York Times

[2]       Krugman, P., 12/3/12,“The GOP’s big budget mumble,” The New York Times

CUTTING SPENDING TO REDUCE THE DEFICIT

ABSTRACT: A deal was reached to address the year-end “fiscal cliff” or austerity crisis. Spending cuts were postponed for two months and most of the tax increases were eliminated, while some tax and revenue increases were enacted. The deficit reduction focus will now largely shift to spending cuts. We should be focusing on job creation and strengthening the economy, but somehow the deficit is the hot topic.

 The discussion of spending cuts will probably focus on the military and on entitlement programs, specifically Social Security and the health care programs, Medicare and Medicaid. Much of the discussion of cutting military spending will be on avoiding cuts. However, military spending can be reduced up to $200 billion per year – without jeopardizing national security.

 Turning to calls for cuts in Social Security and our public sector health programs, keep in mind that every other advanced economy has health care for all and a retirement support system. Social Security has its own funding stream and does not contribute to the deficit, so rationally it shouldn’t be part of this discussion. Ideologues are using the deficit issue to target Social Security because of their doctrinaire opposition to it. Minor changes to its funding would cover benefits for the next 75 years.

 My next post will review proposed cuts to Medicare and Medicaid.

 FULL POST: As you probably know, a deal was reached to address the year-end “fiscal cliff” or austerity crisis. Spending cuts were postponed for two months and most of the tax increases were eliminated, while some tax and revenue increases were enacted. The cap on the US government’s debt was not addressed and will be hit in about two months. Here’s a quick summary of what was enacted: [1]

  • Income tax rates on incomes over $400,000 will increase from 35% to 39.6% and some reductions in deductions will start at $250,000 in income, but there is no “Buffett Rule” requiring 30% be paid on incomes over $1 million. The net result is that new revenue from income taxes will be only about $60 billion per year as opposed to up to $450 billion with the rates increased on incomes over $250,000 and the “Buffet Rule”.
  • The Social Security payroll tax reduction was NOT extended, so all workers will have an additional 2% taken out of their paychecks on earnings up to $110,000.
  • Tax benefits for low income households were extended: a child credit and the Earned Income Tax Credit, which supplements income from low paying jobs. The tuition credit was extended as was the corporate research and development credit. The Alternative Minimum Tax, which originally was to function like the “Buffett Rule”, was adjusted so it won’t affect middle income taxpayers.
  • Unemployment benefits for the long-term unemployed were extended for a year.
  • The estate tax was increased slightly but not nearly as much as some had proposed and only on individual estates of over $5 million or joint estates of over $10 million.

The deficit reduction focus will now largely shift to spending cuts. We should be focusing on job creation and strengthening the economy, given high unemployment and slow economic growth, but somehow the deficit is the hot topic. As the current experience in Europe is clearly showing, cutting government spending weakens the economy and job growth and can put countries back into a recession.

Having said that, the discussion of spending cuts will probably focus on the military and on entitlement programs, specifically Social Security and the health care programs, Medicare (for seniors) and Medicaid (for low income people including low income seniors).

Unfortunately, much of the discussion of cutting military spending will be on avoiding cuts, including the $50 billion per year cut that is now scheduled for March 1. Military spending can be reduced this much and more – up to $200 billion per year – without jeopardizing national security. (See blog posts of 9/29/12 and 11/17/11 for more information.) For example, Lawrence Korb, an assistant defense secretary under President Reagan, has itemized $150 billion in annual cuts to the military budget. [2]

In the recently enacted $633 billion Defense Department spending bill, there was widespread criticism of inclusion of unnecessary spending. The dollar amount was more than the Department or President requested.  The Pentagon complained that it is required to keep weapons, as well as bases and units, that are not needed or efficient. Defense Secretary Panetta decried meddling by Congress that required “excess force structure and infrastructure.” [3][4]

Turning to calls for cuts in Social Security and our public sector health programs, keep in mind that every other advanced economy has health care for all and a retirement support system. So the issue is not whether it is possible to have these programs, it is are we willing to pay for them and are we willing to control health care costs.

Social Security has its own funding stream and does not contribute to the deficit, so rationally it shouldn’t be part of this discussion. Ideologues are using the deficit issue to target Social Security because of their doctrinaire opposition to it. Furthermore, its current funding will cover its benefits for roughly the next 20 years and after that minor changes to its funding would cover benefits for the next 75 years without any cuts in benefits. (See post of 12/4/11 for more details.)

The most prominent proposal for cutting Social Security spending is to reduce the annual increase in benefits that adjusts for inflation. This would save less than $20 billion per year over 10 years. [5] Ask any senior you know if the inflation adjustment is sufficient to keep up with their cost of living and I bet they’ll say, “No.” So cutting this will only hurt our seniors and reduce Social Security’s ability to keep seniors out of poverty. Furthermore, Social Security has become an increasingly important part of retirement income as private sector pensions have largely disappeared; cutting its rather modest benefits seems inappropriate in this environment.

My next post will review proposed cuts to Medicare and Medicaid.


[1]       New York Times, 1/1/13, “Highlights of the agreement,” The Boston Globe

[2]       Dubose, L., 11/15/12, Book review of Ralph Nader’s “The seventeen solutions: Bold ideas for our American future,” The Washington Spectator

[3]       Bender, B., 1/5/13, “A reprieve for local military bases: New Congressional funding flouts Pentagon’s plan for cutbacks,” The Boston Globe

[4]       Boston Globe Political Notebook, 12/21/12, “House approves defense bill despite Pentagon objections,” The Boston Globe

[5]       Krugman, P., 12/3/12, “The GOP’s big budget mumble,” The New York Times

REBUTTING ARGUMENTS AGAINST INCREASING INCOME TAXES ON THE WEALTHY

ABSTRACT: The Bush tax cuts, and the even larger cuts in the income tax rates for high incomes over the last 30 years, have contributed to creating the federal government’s deficit (see post of 12/22/12) and to dramatically widening income and wealth inequality in the U.S. There has been a dramatic shift of the tax burden from the well-off and corporations to middle and lower income households. This shift in the tax burden has contributed to stagnant incomes for middle and lower income earners while incomes at the top have skyrocketed.

 Despite the Republican rhetoric that high income individuals are “job creators,” the fact is that increased income for them is far less effective in stimulating job growth than increased incomes for low and middle income individuals. There is strong evidence, from multiple perspectives, that increasing taxes on the wealthy and redirecting the funds to productive investments or to lower income individuals, for example through unemployment benefits, will benefit the economy and job creation. It would also reduce inequality and address a root cause of the deficit.

FULL POST: The Bush tax cuts, and the even larger cuts in the income tax rates for high incomes over the last 30 years, have contributed to creating the federal government’s deficit (see post of 12/22/12) and to dramatically widening income and wealth inequality in the U.S., which are at their highest levels since the 1930s.

The 400 richest individuals in the US, as identified by Forbes magazine, have pocketed $1.3 trillion because of the Bush tax cuts. The best estimates are that these individuals actually pay only about 18% of their income in taxes, while their predecessors in 1960 paid more than 70%. Not only have their tax rates fallen dramatically (from 91% in 1960 and 70% in 1980 to 35% today [see 11/27/11 post for more detail]), but their increased use of offshore tax havens and other tax reduction strategies has further reduced the taxes they actually pay. For example, the tax return Mitt Romney released shows that he, and presumably his partners at Bain Capital, reported their management fees as capital gains rather than earned income. Assuming they all did, they saved an estimated $200 million on income taxes and another $20 million on the Medicare payroll tax. [1] Also since the 1960s, corporate taxes have fallen from over 27% of federal government revenue to about 10% today. [2]

These reductions in government revenue from high income individuals and corporations have dramatically shifted the tax burden from them to middle and lower income households at the federal, state, and local levels. This shift to regressive revenue sources [3] includes flat rate payroll taxes (i.e., Social Security and Medicare), and in the case of Social Security a cap so that no tax is paid on earnings over $110,000. It also includes most state and local revenue sources, such as sales and excise (e.g., cigarette, alcohol, and car) taxes; flat rate state income taxes; and state revenue from gambling (i.e., lotteries and casinos), all of which are quite regressive. [4] This shift in the tax burden has contributed to stagnant incomes for middle and lower income earners while incomes at the top have skyrocketed. [5] (See my post of 11/13/11 for more detail.) Both fairness and reversing causes of the deficit would argue for increased income tax rates on high incomes.

Despite the Republican rhetoric that high income individuals are “job creators,” the fact is that increased income for them is far less effective in stimulating job growth than increased incomes for middle and low income individuals. The US economy is driven by consumer spending; it’s 70% of our Gross Domestic Product (GDP), a measure of overall economic activity. The lower an individual’s income, the more likely he or she is to spend any additional income to buy goods and services in the local economy. On the other hand, the wealthy are more likely to save additional income or to spend or invest it outside of the US. Furthermore, they are much more likely than the less well-off to use the money for speculative rather than productive investments. Speculative investments do not help the economy or create jobs; they actually harm the economy by increasing prices for consumer goods (e.g., food and gasoline [see my post of 3/5/12]) and by contributing to speculative bubbles (e.g., Internet stocks and mortgage investments) that eventually burst and harm the economy.

Republicans have opposed an increase in the tax rate on high incomes, claiming it will hurt small businesses. But only about 2 – 3% of “small businesses” would be affected and many of these aren’t really small or aren’t businesses at all. Republicans also claim that such a tax increase would hurt the economy and job creation, but “yearly gains in employment, GDP growth, and small business job growth were all greater after the Clinton tax hikes of 1993 than after the Bush tax cuts of 2001.” [6]

In summary, there is strong evidence, from multiple perspectives, that increasing taxes on the wealthy and redirecting the funds to productive investments (such as infrastructure building) or to lower income individuals (who will spend it in their local economies), for example through unemployment benefits, will benefit the economy and job creation. [7] It would also reduce inequality and address a root cause of the deficit.

In my next posts, I’ll take a look at cutting the deficit through spending cuts, the spending cuts in the austerity package, and alternatives to them.


[1]       Peters, C. Nov./Dec. issue, “The Bain of my existence,” Washington Monthly

[2]       Van Gelder, S., 12/8/12, “4 ways to leap the ‘fiscal cliff’ to a better USA,” YES! Magazine

[3]       Regressive revenue sources place a greater burden, relative to one’s ability to forego the income, on middle and lower income households than on higher income individuals.

[4]       Jacoby, J., 12/9/12, “Biggest lottery winner? That’d be the Treasury,” The Boston Globe

[5]       Appelbaum, B., & Gebeloff, R., 11/29/12, “Tax burden is lower for most Americans than in the 1980s,” The New York Times

[6]       Lehigh, S., 12/14/12, “Points of clarity through the fiscal cliff fog,” The Boston Globe

[7]       Judis, J.B., 12/12/12, “Rein in the rich: How higher taxes could lift the economy,” The New Republic

CANDIDATES’ BUDGET PROPOSALS AND THE DEFICIT

ABSTRACT: Both Presidential candidates, Obama and Romney, have put forward tax and budget proposals that they say will reduce the deficit. Obama’s tax and spending proposals would reduce the deficit by about one quarter. Romney’s proposals cannot be reasonably expected to reduce the deficit. Furthermore, they are likely to increase the deficit and the already high levels of inequality in income and wealth.

FULL POST: Both Presidential candidates, Obama and Romney, have put forward tax and budget proposals that they say will reduce the deficit. Obama has specified tax increases and a cut to military spending that would begin to reduce the deficit. Romney says his tax proposals would be revenue neutral, although he fails to specify how he would offset his tax cuts, and he promises to increase military spending. He asserts that his proposals would produce economic growth that would increase tax revenue and reduce the deficit; however, there is no credible evidence for that assertion. (Note: President G. W. Bush’s tax cuts, increases in military spending, and promises of economic growth that would pay for them are what began the process of turning a federal government surplus into deficits.)

Obama would let the Bush tax cuts on income over $250,000 expire and would also restore or increase taxes on unearned income (i.e., capital gains, dividends, and interest). He has also proposed limiting deductions and exclusions from income, as well as implementing the “Buffett Rule,” so that households with incomes over $1 million would at least pay taxes at the rate that middle class families do. These measures would generate roughly $200 billion per year in additional revenue, reducing the deficit by one-fifth. [1]

Obama has also proposed reducing the $700 billion military budget by about $50 billion per year as the wars in Afghanistan and Iraq wind down. Together, these tax and spending proposals would reduce the deficit by about one quarter.

Romney proposes keeping the Bush tax cuts and further reducing tax rates on earned income by one-fifth. He would maintain even lower tax rates on unearned income than earned income. Overall, these proposals would reduce income tax revenue by about $400 billion per year. Romney says he will make up for the lost revenue by reducing tax deductions and credits, and that the well-off will continue to pay at least the same amount in taxes. He says would do this by limiting total deductions and credits on a tax return to a fixed dollar amount and has mentioned amounts ranging from $17,000 to $50,000. [2]

While it is theoretically possible to achieve the same amount of revenue (i.e., revenue neutrality) under Romney’s proposals, it would be challenging and would require significantly cutting very popular deductions. [3] Four deductions account for 80% of all deductions and credits; in order of size they are the deductions for 1) home mortgage interest, 2) state and local taxes paid, 3) real estate taxes paid, and 4) charitable contributions. If an across the board cut to deductions were used to offset the loss in revenue, Romney would have to cut all these deductions by about one-third. Clearly, this would be unpopular and would also hit the middle class as well as high income families.

Romney has also proposed eliminating the estate tax, while Obama proposes maintaining an estate tax on estates over $3.5 million. Romney has also stated that he will increase the military budget. Here again, Obama’s proposal clearly reduces the deficit and these Romney proposals would clearly increase the deficit. The benefits of eliminating the estate tax, of course, go to wealthy families.

With a backdrop of 30 years of decreasing income tax rates that have seen dramatic increases in income and wealth in our best-off households and middle class families struggling to keep their heads above water, further cuts in tax rates do not seem at all likely to reverse this trend or benefit the middle class. Further, to provide some perspective on Romney’s proposal, looking at the cuts in tax rates alone, a family with taxable income of $100,000 or less, whose tax rate is cut from 25% to 20%, would see a benefit of $5,000 or less. A family with taxable income of $1 million, whose rate is cut from 35% to 28%, would see a benefit of $70,000; and if income is $10 million, a benefit of $700,000. This just doesn’t seem fair, especially on top of the huge tax cuts these high income households have seen over the last 30 years.

In addition, Romney’s proposal maintains lower rates on all unearned income (i.e., capital gains, dividends, and interest), while Obama’s has lower rates only on long-term capital gains (i.e., investments held for over one year). Having lower rates on all unearned income also doesn’t seem fair, especially given that the great bulk of unearned income goes to high income, high wealth households. Moreover, one of Romney’s arguments for lower tax rates is that by letting taxpayers keep more of what they earn, they will be rewarded for working. If we want to reward work, then income tax rates on work, namely earned income, should be lower (not higher) than the rates on non-work (unearned) income.

Finally, Romney’s assertion that cuts in tax rates will spur economic growth does not have any credible evidence. [4] This rationale has been used for the tax rate cuts that have occurred over the last 30 years. The strongest economic growth of the past 30 years (and the only elimination of the federal government’s deficit) occurred under President Clinton when he increased tax rates on high incomes. Furthermore, the rationale for tax cuts spurring growth has been that they put more money in consumers’ pockets and, with consumer spending being two-thirds of our economy, their spending will grow the economy. However, Romney has said his tax cuts will be offset by reducing deductions so that there will be no loss in government revenue or increase in the deficit. Therefore, there is no increase in the money in consumers’ pockets and no increased spending to spur economic growth.

If Romney’s tax cuts are indeed offset by reducing deductions so the result is revenue neutral, and if he lives up to his commitment to cap federal government spending at 20% of the overall economy (i.e., of gross domestic product), which would require significant spending cuts, Romney’s plans are likely to lead to job losses and a recession, not economic growth. Overall, Obama’s budget and tax proposals are highly likely to do more to spur near-term growth in jobs and the economy than Romney’s. [5]

In conclusion, Obama’s tax and budget proposals do take steps that can be reasonably expected to reduce the deficit by about one-quarter. Romney’s proposals cannot be reasonably expected to reduce the deficit. Furthermore, they are likely to increase the deficit and the already high levels of inequality in income and wealth.


[1]       Tax Policy Center, Oct. 2012, “Major tax proposals by President Obama and Governor Romney”

[2]       Wirzbicki, A., & Borchers, C., 10/5/12, “Questions on challenger’s idea to cap tax deductions,” The Boston Globe

[3]       Kranish, M., 9/21/12, “Candidates leave much unsaid on tax plans,” The Boston Globe

[4]       Rowland, C., 10/15/12, “GOP faith unshaken in supply-side tax policies,” The Boston Globe

[5]      Bivens, J., & Fieldhouse, A., 9/26/12, “Who would promote job growth most in the near term?” The Century Foundation

THE “FISCAL CLIFF” AND THE ECONOMY

ABSTRACT: The federal budget’s “fiscal cliff” is looming on December 31, 2012. If Congress and the President let us fall over its edge, it will significantly harm our fragile economy. It cuts annual spending by about $100 billion per year and increases taxes by about $350 billion per year. The result would be a significant reduction in the annual deficit, from about $1 trillion to about $600 billion. However it would also negatively affect the economy: a recession or projected growth of only 0.5% versus growth of between 1.7% and 4.4% if the fiscal cliff were completely eliminated. The negative impact on the economy would make it harder, over the longer-term, to reduce the deficit.

There are many ways to soften the cliff’s impact. One would be to eliminate the tax increase on income under $250,000. Another would be reducing the spending cuts. It’s clear that the US government’s stimulus package helped soften the US recession; it’s equally clear that austerity is not a route to economic recovery. Austerity in Europe has turned a slow recovery into a stalled economy with recession in some countries. We need to call on Congress and the President to soften the fiscal cliff. Right now, the primary focus needs to be on strengthening the economy and creating jobs, which, over the longer-term, will help reduce the deficit.

FULL POST: The federal budget’s “fiscal cliff” is looming on December 31, 2012. If Congress and the President let us fall over its edge, it will significantly harm our fragile economy. Under current law, annual spending cuts of about $100 billion per year would occur and the Bush tax cuts of 2001 through 2003 would expire, which would result in an annual tax increase of about $350 billion.

The result would be a significant reduction in the annual deficit, from about $1 trillion to about $600 billion. However, it would also negatively affect the economy; projections range from a recession (i.e., negative economic growth as economic output shrinks) to growth of only 0.5%. If the fiscal cliff is completely eliminated, in other words if all the tax cuts are extended and the spending cuts are eliminated, projected economic growth would be between 1.7% and 4.4%. [1][2] The negative impact on the economy would make it harder, over the longer-term, to reduce the deficit.

There are, of course, many ways to soften the impact on the economy and on specific groups or agencies. The fiscal cliff’s increased taxes would affect almost everyone and, therefore, hurt consumer spending. Some people are proposing eliminating the tax increase on income under $250,000. This would reduce the tax increase to about $200 billion per year (instead of $350 billion). In addition, it would significantly reduce the impact on our economy (which is 70% consumer spending) because those with incomes over $250,000, who would see their taxes increase, spend only a fraction of their income on goods and services in the local economy. The real job creators in our economy are the vast middle class; their consumer spending is businesses’ revenue and increased business revenue is what leads to job creation. [3]

Reducing the spending cuts would soften their impact. The fiscal cliff’s spending cuts would be split roughly evenly between the military and social programs. Some of the loudest voices arguing for reducing the spending cuts are opposing the $50 billion cut to military spending despite the facts that:

  • Military spending has more than doubled since 2001,
  • We’re winding down two wars, and
  • This represents less than 7% of the over $700 billion per year military budget, which is roughly half of discretionary spending.

One argument that is being put forth is that a cut to military spending would cost jobs. Ironically, this argument is being put forward by many of the same people who have said that government spending doesn’t create jobs and that the way to improve the economy and create jobs is to cut government spending. Yes, cutting military spending will cost jobs in the military-industrial complex. But because military spending creates fewer jobs per dollar than other types of spending, cutting it will cost fewer jobs than cuts in other areas, or, if these cuts will allow spending elsewhere, more jobs will be created than those lost, resulting in a net gain in jobs. [4] (See 11/17/11 post: Defense spending: Can we afford to cut it?)

It’s clear that the US government’s stimulus package helped soften the US recession; it’s equally clear that austerity – cutting government spending and benefits often while raising taxes in an effort to reduce government deficits – is not a route to economic recovery. [5] While deficits do need to be addressed over the longer term, doing so while our economy is weak will only exacerbate the problem. Austerity in Europe has turned the slow recovery of 2009 into, at best, a stalled economy and recession or even depression in some countries. Demands for austerity in exchange for financial aid have occurred five times in Europe, with Greece, Portugal, Ireland, Spain, and Italy. Each time the austerity measures have deepened the economic crisis and weakened the country’s economy. Cutting public spending and benefits, while increasing taxes, decreases employment and incomes. This reduces consumer spending which hurts businesses and kills jobs. As a result, tax revenue falls, increasing (not reducing) government deficits. [6]

We need to call on Congress and the President to soften the fiscal cliff. Right now, the primary focus needs to be on strengthening the economy and creating jobs, which, over the longer-term, will help reduce the deficit. There is ample evidence that austerity will only make the economy and the deficit problem worse.

My next post will examine strategies for reducing the deficit in both the short and the long-term that would be less damaging to the economy than the fiscal cliff.


[1]       Businessweek, 8/2/12, “A decade of tax cuts and deficits,” Bloomberg Businessweek

[2]       Lipschutz, N., 8/22/12, “Even if ‘fiscal cliff’ gets resolved, outlook is anemic,” The Wall Street Journal

[3]       Reich, R., 8/30/12, “Labor Day 2012 and the election of 2012: It’s inequality, stupid,” http://www.RobertReich.org

[4]       Pemberton, M., 8/16/12, “Top 10 myths of the jobs argument against military cuts,” Institute for Policy Studies

[5]       Loth, R., 9/1/12, “The value of public-sector jobs,” The Boston Globe

[6]       Kuttner, R., 9/10/12, “Angela Merkel’s bad medicine,” The American Prospect

THE ROLE OF LABOR UNIONS

Here’s issue #37 of my Policy and Politics Newsletter, written 6/28/12. Labor unions have been in the news quite a bit lately. This issue focuses on the role of unions in our society and economy.

Labor unions allow workers to approach employers as a group to discuss working conditions, pay, benefits, and other workplace issues. This affects the balance of power between workers and employers.

If you as an individual employee approach your employer about any of these issues, for example, receiving paid sick days if you currently had none, where does the balance of power lie? With the employer, of course. But if workers as a group approach the employer about such issues the balance of power is quite different.

Pay is probably the first item that comes to mind when thinking about employer – employee issues. There is lots of evidence that when employees are members of unions and bargain collectively on pay, they average 10 – 30% higher pay after controlling for other important variables. [1]

Employee pay is ultimately about how the profits of a business are divvied up among front-line or on-the-floor workers, senior executives and managers, and owners (which may be senior executives or stockholders). The balance of power among these groups affects how the rewards of the business are split. If workers participate in the discussion as a group, i.e., as members of a union, the result will be different, as indicated by hard evidence, common sense, and economic theory. Highly visible examples of this have been the negotiations between professional athletes and team owners in basketball most recently, but also in football, baseball, and hockey.

Therefore, it’s not surprising that as union membership in the private sector has dropped dramatically (from 34%in 1954 to 7% today [2]), income inequality has widened. Senior executives and stockholders have gotten much richer, while the rest of us have barely maintained our standard of living. The share of profits going to workers’ pay is the smallest it’s been since tracking began in 1947. [3]

This has not just increased in income inequality, but has undermined the middle class broadly. Union members’ pay and benefits used to set a standard in many sectors of the economy and to some extent for the economy as a whole. Non-union workers would receive similar compensation because there was competition in the job market, so companies with non-union workforces had to pay competitively to attract good workers. As union membership has declined, this is less of a factor in the job market and therefore there is downward pressure on wages and benefits.

The erosion in benefits has been very visible. Fewer and fewer workers have company managed pension plans, which were standard for union workers. And workers are paying more and more for their health care. Reductions in job security and increasing use of part-time workers are also partially the result of decreased union membership. Other issues that unions over the years have had an impact on are the length of the work week, overtime rules, availability of paid vacation and sick time, safety in the workplace (there are an estimated 58,000 workplace related deaths each year [4]), the minimum wage, unemployment and workplace injury compensation, how layoffs are handled, unfair or arbitrary actions by supervisors, and discrimination in hiring, pay, and promotions in the workplace.

Without or with weakened unions, union and non-union employees have less power and employers have more power. As a result, workers are likely to receive less pay, fewer benefits, and experience less desirable working conditions.

The next issue of the newsletter will address the reasons for the decline in private sector union membership.


[1]       Wikipedia, retrieved 4/23/12, “Labor unions in theUS,” en.wikipedia.org/wiki/Labor_unions_in_the_Unitede_States

[2]       Bureau of LaborStatistics,US Dept. of Labor, 1/27/12, “Union members – 2011”

[3]       Reich, R., 3/2/12, “Bye bye American pie: The challenge of the productivity revolution,” retrieved on 3/3/12 from www.commondreams.org/view/2012/03/02-6

[4]       Nader, R., 3/30/12, “If big labor would fight millions would join them on the ramparts,” retrieved at http://www.commondreams.org/view/2012/03/30-5

STUDENT DEBT: THE NEXT MIDDLE CLASS CRISIS?

Here’s issue #34 of my Policy and Politics Newsletter, written 6/6/12. It examines the rising levels of student debt.

Total student debt topped $1 trillion dollars recently (surpassing credit card debt) with borrowing exceeding $100 billion for the first time in 2010. The average 2010 graduating senior who had a student loan owed a little over $25,000 and 17% of graduating seniors’ parents had loans, and they averaged $34,000. Family incomes, grants, and public investments in higher education have not kept up with rising higher education costs, and therefore the use of loans has increased. Use by older students has grown as they pursue re-training and further education in an effort to increase their chances of landing a good job. Parents are taking on increasing debt to support their children’s education (roughly 10% of the total or $100 billion) and increasing numbers of seniors who are receiving Social Security owe money on student loans.

There is growing concern that student loan defaults could become a problem for lenders. Among members of the Class of 2005 who had begun repaying loans, an estimated 25% have missed at least one payment, making them delinquent, and 15-20% have defaulted, having been delinquent for nine months or more. Once default has occurred, the full amount of the loan is due immediately and interest, penalties, and fees can accumulate. Also, for federal government loans, the borrower loses eligibility for loan forgiveness and future aid, and can also have wages, tax refunds, and federal benefits (including Social Security) garnished. There is no statute of limitations (as there is for most crimes except murder and treason), so borrowers are responsible for the loan literally forever.

There is no relief from student loans under bankruptcy except under very rare and difficult to assert hardship situations. Prior to 1976, student loans were forgiven in bankruptcy, but since then bankruptcy laws have been tightened and in 2005, in a major rewriting of the bankruptcy laws (with a big push by financial institutions wanting to make it harder for consumers to escape credit card debt), student loans were made “non-dischargeable” except for “undue hardship.” This provision was slipped into the 2005 law by an unidentified lawmaker with no hearings or public discussion. After the law was passed but before it went into effect, the House Judiciary Committee recommended that this student loan provision be repealed because less than 1% of student loans were being discharged in bankruptcy. However, repeal never happened. [1]

The student loan debt burden is hampering the economic recovery; it dampens consumer spending, which is what drives our economy. The middle class is getting squeezed again. It is struggling to maintain its standard of living through higher education but can only afford it with increased debt. With high unemployment, jobs that reward education and allow students to pay off their debt are hard to get. The middle class has no economic margin. If they have jobs, wages and benefits are stagnant at best, and families have increased work hours as much as possible. Home prices are depressed with no equity to tap and credit card debt is high. Defaulting on student debt could be the next crisis for middle class families – and for lenders. Long-term delinquency rates on student loans (around 9%) are already higher than they are for mortgages, auto loans, and home equity lines of credit. [2]

In the midst of this, the interest rate on federal student loans will double, from 3.4% to 6.8%, on July 1 unless Congress acts. This will affect 7.4 million students. The cost for keeping the rate at 3.4% is about $6 billion in lost revenue. (This is less than 0.2% of the federal budget of $3.8 trillion including Social Security and Medicare.) Despite the fact that the federal government can currently borrow money at rates well below 3%, in the current political and fiscal environment every reduction in projected revenue must be offset. The fight in Congress is, ostensibly, over how to pay for the cost. The Republicans have proposed cutting preventive health care programs in the new health care law. This was defeated. The Democrats’ version had 51 votes but was filibustered by the Republicans. [3]

In addition, to keeping the interest rate low, advocates are calling for reinstating bankruptcy relief, a reasonable statute of limitations on loan collection, and controls on private interest rates and collection practices. [4] [5]


[1]       National Association of Consumer Bankruptcy Attorneys, 2/7/12, “The student loan ‘debt bomb’:America’s next mortgage-style economic crisis?”

[2]       Common Dreams, 5/31/12, “Student debt explodes, climbing 275% since 2003,” www.commondreams.org/headline/2012/05/31-8

[3]       Associated Press, 5/26/12, “Senate rejects two plans on student loan rates,” The Boston Globe

[4]       Brown, E., 5/11/12, “Indentured servitude for seniors: Social Security garnished for student debts,” Common Dreams, www.commondreams.org/view/2012/01/11-8

[5]       National Association of Consumer Bankruptcy Attorneys, 2/7/12, see above