Shame haunts hard-working Americans. Why can’t we do as well as our parents?
But the loss of the American dream is not our fault. Looking out from our jobs, our houses, our families, it’s hard to see that a tiny parasitic upper class has sucked away the benefits of a generation of economic growth from the vast majority who produced it.
And it will happen again. Unless we, the democrats, build our next platform around two pillars of economic power --
-
Restructuring the boards of directors of all the companies that have come to monopolize our economy, and
-
Passing a fair tax that treats earned income no worse than unearned income.
Root causes
We must get smart about root causes. Because two things have gone deeply wrong to let this tiny parasitic upper class accumulate unprecedented power.
The first is unrestricted payouts to monopoly executives. For what? For building monopolies. Of course they’re paid like MVPs. Monopolies take a lot of money out of the pockets of workers and customers and hand it to the owners who pay them.
Forbes reports CEOs of firms in the S&P 500 Index took home $13,940,000 on average in 2017 -- 361 times the $38,613 average pay of their production workers.
Of course, the companies and finance firms carving our economy into monopolies make rich payouts to plenty of executives other than CEOs. By 2015, the average income of the top 1% of US earners was $1,300,000 while the average income of the other 99% was $50,000. Average earners in the top slice were taking home 26 times the average of everyone else, according to the Economic Policy Institute’s New Gilded Age report.
The second root cause is tax holidays for unearned income -- income on wealth earned some other time, some other place, and usually by somebody else. Warren Buffett was so stunned to find his secretary paid a higher rate than he did under a new Republican tax law that he protested it in a Washington Post op-ed.
The Institute on Taxation and Economic Policy estimated the middle 20% of Americans paid 25.4% of their income -- almost all of it earned income -- in taxes of all kinds in 2018. But people with unearned income pay just 15% in federal taxes on most of it -- and many of them claim residence in states with low or no further taxes on it. So while the typical wage earner pays 25% in taxes, a lot of people who don’t have to work pay just 15% on income from whatever they’ve inherited.
Focusing just on federal taxes, the 15% capital-gains bracket corresponds to earned-income brackets from 22% to 35%. So you pay 25% or more on most of the range of earned income where you would pay just 15% if you were lucky enough to get the same income from a family trust.
How much of a difference does a 25% rate on earned income vs. a 15% rate on unearned income make over time? That’s $5,000 a year for a family bringing in $50,000. So you get a $5,000 per year break in taxes for every $50,000 of income that was earned some other time, some other place, and probably by someone else.
Buying power
This wouldn’t be so bad if the lottery winners running monopolies and trust babies on permanent tax holidays plowed their money back into the economy. We could all go to work building business jets and yachts.
But the wealth cartel doesn’t do that anymore. To maintain its economic power, it buys political power. And the cumulative loss of democratic freedoms that have resulted from its four-decade buying spree is staggering.
A successful effort to block campaign finance reform in the 1980s and 1990s paid fantastic dividends. Wealthy out-of-state donors focused their resources on low-population states, winning state assemblies, governorships, and senate races.
Governors and state assembly members beholden to the wealth cartel attacked voting rights and unions, making it hard to vote, gerrymandering voting districts, and passing right-to-work laws restricting workers’ right to assemble. Senators owing their seats to the same people focused on seating friendly judges and blocking neutral ones.
Those judges, in turn, handed down a cynical stream of unprincipled decisions to strengthen their donors. They undermined restrictions on political spending by extending free-speech rights for people to corporations and supported state efforts to restrict voting rights -- starting the whole cycle over again.
This army of senators, governors, judges, and members of Congress and state assemblies -- now joined by reporters, pundits, think tank executives, researchers, and news anchors paid directly by the wealth cartel -- is trying to build a one-party state. A state where the FBI investigates only Democrats and where the central bank fights recessions only when Republicans hold the white house.
And their reason for replacing the institutions of a competitive democracy with a one-party state?
-
Creating hidden subsidies for the very rich, and
-
Cutting services for the middle class as discreetly as possible.
In other words, extracting hidden transfers from the middle class.
Hidden transfers to the rich
The Roosevelt Institute’s report New Rules for the 21st Century provides a sweeping view of just how far the wealth cartel’s efforts to extract hidden transfers from the middle class have advanced in every corner of American life.
No growth dividends for the powerless
How significant are these transfers? The simple truth is that they’ve been devastating.
Hidden transfers to the cartel have extracted most of the benefits of a generation of economic growth from the vast majority of people who produced it.
From 1979 to 2015 -- an entire career -- the Congressional Budget Office calculates that real income after all taxes and transfers grew an average of 1.1% per year for the middle 60% of US households vs. 3.5% per year for the top 1% -- a difference of nearly two and a half percent per year.
For a perspective on that, total US real income grew roughly two and a half percent per year over the same period for the entire country. It’s as if the top 1% of US households were racing ahead of the middle 60% at a rate as great as the rate of growth of the entire US economy.
Over a generation, the impact has been vast. From 1979 to 2015, average household income has more than tripled for the top 1% while growing by less than half for the middle 60%. Imagine what an optimistic, secure, entrepreneurial, thriving place America would be if it were the other way around.
It’s probably the most the wealth cartel could have extracted. Had they extracted any more -- had typical wages not just stagnated but dramatically declined -- a political realignment or civil unrest would probably have put an end before now to the cruelty of an economy run almost exclusively for the very rich.
To stop the wealth cartel from sucking away the benefits of another generation of economic growth from the people who produce it, democrats must restore economic power to the people.
We must attack the root causes of the loss of that power by
There are lots of other good ideas. But unless we restore the people’s power, nothing will come of them.