We’re in a class war.
It’s the corporations and the very wealthiest against all the rest of us.
What’s wrong with the rich getting richer?
In the United States, periods of high income inequality correlate with bubbles followed by crashes that include massive bank failures. They cue depressions and recessions. It happened in the 1920’s, the 1980’s, and then again in 2008.
Timothy Noah, in The United States of Inequality (Slate, 9/30/10), wrote, “Income distribution in the United States [has become] more unequal than in Guyana, Nicaragua, and Venezuela, and roughly on par with Uruguay, Argentina, and Ecuador.”
Take a look at that list.
Countries with wide income inequality don’t lead the world in research, technology, industry, and innovation. They’re unstable.
They have large under-classes. They have high rates of crime. They have little opportunity.
In such countries the rich have disproportionate power. They take control of all aspects of society, especially government, the police, and the judiciary. They become self-perpetuating.
If current trends continue, “the United States by 2043 will have the same income inequality as Mexico.” (Tula Connell, Mar 12, 2010, AFL-CIO Now).
The most important arguments against income inequality are not about morality or fairness. They are about the economic and social well-being of the nation. Countries with high levels of income inequality are third world countries.
The primary, and best, weapon against income inequality is a progressive tax structure.
As people move up the income ladder they pay a higher rate at each rung. It should also mean that unearned income –from dividends and capital gains – is taxed at least as high as earned income (money that people actually work for.)
Tax cuts for the wealthy mark, with great precision, the decline in fortunes of ordinary Americans. From World War II until the mid1960’s, the top marginal rate was 90%. (Yes, that’s the same America that Bill O’Reilly is so nostalgic for. Selective blindness.)
From 1950 to 1965 – with those high tax rates – median family income rose at a steady 4% a year, close to 60% over the full fifteen-year period. That’s in constant dollars, adjusted for inflation.
The first big tax cut came in 1964-65. The top rate went down to 70%.
The rise in median income instantly slowed down.
By 1970, median family income, adjusted for inflation, started to decline. There were more tax cuts from 1982 to 1988, bringing the top rate all the way down to 28%. It was ‘morning in America!’ Except not in terms of income for ordinary people. In 1995, median income was exactly where it had been in 1971. (Source: Stanford University)
It was only after Clinton’s comparatively modest tax hike – from 31%-38% – that income for ordinary people began to rise at a rate resembling that of 1950-1965.
Those gains came to an abrupt end with Bush the Younger’s tax cuts.
We had a chance to slow the process by letting them expire.
We’ve lost that round.
That happens to have been incredibly important, not just in and of itself, but because it is the launching pad for the next set of assaults.
Governments, like businesses, have revenue and costs.
Revenue comes from taxes. America thrived with a top marginal tax rate of 90%. Indeed, those years were the period of our greatest increase in wealth and well-being for all classes. The second period of greatest growth followed the Clinton tax hikes.
We also know, as a matter of fact, that tax cuts don’t produce jobs. We just watched that happen for eight years under Bush and we’re watching it continue under Obama.
We also know from recent history – the Clinton years – that even moderate tax hikes can transform huge deficits – from the tax cuts of the Reagan/Bush I years – into surpluses.
Yet tax hikes are off the table.
So we either must accept deficits – going and growing forever – or look to costs.
Unlike businesses, governments spend their money on the general good. They build physical infrastructure, provide clean water, get rid of sewage and garbage, provide health care and education, fire, police, and a justice system, set standards for health and safety, care for the poor and disabled, support the arts and sciences, collect and distribute information. Nowadays they provide ballast to the whole economic system. At the bottom, with unemployment insurance, workman’s compensations and social security, ant at the top, they rescue banks, insurance companies, and industries.
In America we also spend huge sums on our defense industry and on an assortment of wars. But those things, like tax hikes, are off the table.
So what do we cut?
Among the biggest ticket items on the newly announced Republican agenda is repeal of the Davis-Bacon Act.
Davis-Bacon, passed in 1931, under President Herbert Hoover, requires contractors on federal projects to pay the ‘prevailing wage.’ Most federal projects require bids. The government has to give the job to the lowest bidder. Without Davis-Bacon, federal jobs will go to the contractor who will use non-union workers, pay the lowest possible wages, even if that means importing desperate people who will work cheap and take the jobs away from the people who live and work where the project is being done.
Davis-Bacon is considered pro-union legislation. Right-wing think tank literature makes it clear getting rid of it is a way to strike out against unions.
After tax policy, unions are one of our strongest defenses in the class war.
Unions do more than raise wages. They improve working conditions and safety. They provide protection against abuse, intimidation, and wrongful dismissal. Non-union employers, in order to stay that way, have to offer something at least within range of union rates, so the existence of unions helps everyone. Unions also have political power, they spend money and mobilize their members to vote.
Businesses have become very good at beating unions. And they’re getting better at it. According to Business Week, “over the past two decades, Corporate America has perfected its ability to fend off labor groups.” (How Wal-Mart Keeps Unions at Bay, 10/28/2002),
In the 1940’s a third of private sector employees were unionized. Today, it’s down to just 7.2%.
Unions only remain strong in the public sector, where membership is 37%.
If you read the papers or watch the news, you will see an anti-public sector union story almost everyday. These are the people who teach your kids, pick up the trash, clean the sewers, drive the buses and trains, they’re the police and fireman.
Those stories will tell you that their pension fund liabilities will bankrupt the states. That it’s unionized teachers who have ruined our schools. Charter schools – without unions – are the new favorite charity for billionaires.
Tax cuts for the wealthy led to a mad speculative bubble, which led to a crash, causing the current deep recession, which has caused a tax revenue crisis across the board – not just for the federal government, but for states and local governments as well. So what’s the solution we’re being offered?
In New York’s last gubernatorial campaign, both major candidates ran as Ronald Reagans – “No new taxes! Cut services!” One of the Reagans won. With unemployment high, his cure is to cut jobs. Because this will magically create jobs. Nobody challenges this because – I guess – there are no children in the audience to cry out “The emperor has no clothes.” No logicians, either.
In an interview with Bloomberg News, John Lekas (a self-promoting fund manager), said many states and municipalities are facing bankruptcy. Schools will close, garbage won’t be collected, there will be fewer cops on the street. But who cares, there’s a silver lining. “The good news on that is they can jettison their pension obligations, jettison their union contracts.”
People made a deal – work twenty or twenty-five or thirty years – and when they retired, they would get a pension. But they’re ordinary shlubs, teachers, firemen, clerks, guys who drove snowplows and filled potholes, so thank God, we don’t have to pay them what we owe them.
Even better, we can start driving down the wages of current workers in those positions. We can fire anyone we don’t like, or who looks at us funny, or stands up for their rights … well, they won’t have any, will they?
Meantime, corporate profits are at an all time high.