The Betrayal of the American Dream (27 page)

As American policymakers continue to extol the benefits of free trade, the Chinese ignore the rhetoric and continue to build a self-sufficient economy the old-fashioned way—by protecting and enhancing its domestic industries. What need will China have to import much of anything from us once it has created all the basic industries? Meanwhile, the United States will become even more dependent on China as we send jobs and industries there.

None of this matters to multinational corporations and the Wall Street analysts who cheer them on. In exchange for short-term profits and hefty compensation, they are jeopardizing the country’s future. They illustrate chillingly what Ralph Gomory, the longtime head of research at IBM, president-emeritus of the Alfred P. Sloan Foundation, and a longtime critic of U.S. trade policy, has warned about. As Gomory told a congressional committee in 2008:

What is good for America’s global corporations is no longer necessarily good for the American economy.

We need to change this and better align the goals of corporations and the aspirations of the people of our country.

CHAPTER 9

RESTORING THE AMERICAN DREAM

O
ver the last four decades, public policies driven by the economic elite have moved the nation even further away from the broad programs that helped create the world’s largest middle class, to the point that much of that middle class is now imperiled. The economic system that once attempted to help the majority of its citizens has become one that favors the few.

Not everyone in the middle class who pursued the American dream expected to get rich. But there was a bedrock sense of optimism. Most people felt that life was good and might get better, that their years of dedication to a job would be followed by a livable, if not comfortable, retirement, and that the prospects for their children and the generations to follow would be better than their own.

Pam Sexton, a market researcher and engineer with two college degrees, described her version of the American dream like this: “The American dream is that you can work hard and be rewarded for your hard work. You’ll be able to have a home and family and prosper and have medical care and not have to worry about expenses and bills. This is a country of opportunity.” But Pam, along with thousands of others, lost her telecommunications job in 2009, and the dream died: “I feel like the last few years that’s all disintegrated or evaporated.” It is a refrain we’ve heard across the country.

The economic collapse after 2007 was responsible for much of the most recent damage to the middle class, but even when unemployment declines significantly and the economy improves, all the policies that have been eroding the middle class will still be in force.

A version of the middle class will survive. There will be jobs that pay well, and the people who get them will enjoy many of the benefits of their parents. But the size of the middle class is in jeopardy. In the past, it seemed that a broad band of opportunity was accessible to increasing numbers of people who worked hard and played by the rules. That has changed: the middle class is shrinking alarmingly, and there are fewer and fewer entry points.

What follows is a list of the bare minimum of steps that in our view must be taken to restore the vibrancy of middle America so that it is a realizable dream for most Americans, not just the lucky few. These measures would go some way toward achieving equity and prosperity for everyone.

REVISE THE TAX CODE

If you were one of the richest Americans in 1955, you paid on average about 51.2 percent of your income in federal taxes. If you were one of the richest Americans in 2007, your tax rate had plummeted to an average of 16.6 percent. Over that period, Congress systematically cut tax rates for the rich, allowed certain income to be excluded, and enabled the wealthy to funnel vast amounts of money through loopholes.

The justification for cutting tax bills was to stimulate the economy and create jobs. That hasn’t happened; instead, tax cuts have given us a wealth gap greater than at any time since the late 1920s, when a similar chasm between the rich and everyone else foreshadowed the Great Depression.

Not only should we stop cutting taxes for the rich, but the very rich should pay more. Paying higher taxes wouldn’t affect their lifestyle, and it would make our society as a whole more prosperous, which in the end benefits everyone, including the very rich. It also would dramatically reduce the federal deficit, which has soared in no small part because of tax cuts extended to the rich over the years.

Of all the economic challenges facing the middle class, the tax system should be the simplest to correct: what needs to be done is to reinstitute a series of tax rates that would apply largely to upper-income taxpayers. This would eliminate the situation that puts taxpayers who earn $388,000 a year in the same tax bracket as those who earn $50 million.

Most of the rich, of course, strenuously oppose paying higher taxes. Ever since the income tax was first levied, income tax foes have denounced any system that contains more than two or three rates as being too “complex.” What they really mean is that, when there are more rates, the ruling class and their wealthiest friends have to pay more. Listen carefully to debates over the need to confine the number of rates to two or three to simplify the tax code. Keep in mind that a code with ten rates is every bit as simple as a code with two rates. Revising the code to add more rates would just mean the wealthy have to pay more of their fair share.

“Simplification” of the tax code has been a Trojan horse promoted by the rich and their allies for years; it’s a concept that lures people into thinking that fewer rates would provide a more just system, when in fact it’s just the opposite. U.S. congressman Paul Ryan, the House budget chairman, submitted a proposed budget in 2012 that he claimed would “simplify” the tax code by reducing the number of tax brackets and lowering the top rate on the wealthy to 25 percent. Nothing could be simpler—at least for the ruling class and their friends who would rake in the billions. And nothing could be more catastrophic for working people. And the rest of America.

The tax code is complex, but not because of the rates. In fact, much of the complexity stems from provisions—usually tax exclusions—that have been inserted to take care of those at the top. Dividend income was taxed the same as wages and salaries for many years until Congress lowered that rate in 2003. This complicated the tax code and put a costlier oversight burden on the IRS, but it was a huge gift to the wealthy. And it’s a gift that would keep on giving if Congressman Ryan has his way. The tax proposal he floated in 2012 would eliminate federal income taxes entirely on dividend, interest, and capital gains income, a windfall of staggering proportions to the wealthy.

If Congress were serious about making the tax code simpler and fairer, what might it do? Why not create an individual tax system that requires an annual 1040 return of no more than a single sheet of paper? It would include all of your income and the sources of that income—wages, interest, dividends, rental income, what’s referred to as capital gains and royalties. In short, every dollar of gross income from whatever source derived.

The sum of all that income then would be multiplied by your tax rate. No deductions for any purpose. No tax credits. No personal exemptions. There would be multiple rates, possibly as many as a dozen, running up to a top rate of 50 percent, which would be applied to all income over, say, $10 million. Multiple rates would ensure, as a matter of fairness, that people in totally different economic circumstances would not be lumped together in the same tax bracket, as has been the case since the highly-touted tax overhaul during President Reagan’s era.

The task of salvaging a fair corporate tax code is complex, in no small part because the current code has been bought and paid for by the elites, the giant corporations, and the special interests. This code has the unfair and undesirable consequence of taxing most heavily and treating most unfairly those companies that operate entirely within the United States. These are the businesses that actually provide jobs for Americans—grocery stores, dry cleaners, tool and die shops, small clothing makers, construction companies, bus companies, theaters, manufacturers that employ anywhere from a few hundred people to several thousand—and have no dealings of any kind outside the country. For these businesses, which create jobs here, not abroad, there is no offshore tax haven or slick way to move money around the world. The only way to reform the corporate tax is to toss out the current code and replace it with a system that treats everyone the same. That’s no small challenge. The system Congress has crafted taxes corporations at the same rate, but special deals inserted into the tax code by lawmakers beholden to corporations dramatically lower tax bills.

So maybe it’s time to begin experimenting with new approaches. One possibility is a sales tax on all Wall Street transactions, everything from individual stocks to the latest exotic instruments. Even a modest levy—less than the rate most people pay in sales taxes—could generate hundreds of billions of dollars in revenue. Far-fetched? A financial transactions tax is under active consideration by the European Union. Another option: A gross receipts tax, which would make avoidance and evasion more difficult.

Lastly, it’s impossible to talk about taxes without mentioning the one issue that has needlessly stirred panic among many seniors concerned about their Social Security—the national debt. Contrary to the frenzied claims advanced by Republicans—notably House Budget Committee Chairman Paul Ryan—along with private citizens who speak for the ruling class, the sky will remain where it is if the debt is not quickly eliminated. In truth, the budget deficit and debt issues are nothing more than a vehicle to continue tearing down the safety net of millions of Americans.

That’s not to say we can continue adding to the debt in the reckless way we have over the last two decades. But the working poor and the middle class should not have to bear the burden of that debt through cuts in government programs as well as higher taxes. There is no legitimate reason to terminate programs that serve only the poor or working class. And there most decidedly is no good reason to even talk about cutting Social Security. It has not contributed a dollar to the debt. In fact, over the years, excess Social Security dollars have been used to pay for wars and ordinary programs and mask the size of the debt. The day will come when some action will be needed to bring Social Security taxes and payments into balance, but that is achievable.

Whatever decisions are made on taxes will go a long way toward either resolving or exacerbating the deficit and national debt. Over time, a carefully targeted tax system, combined with judicious spending cuts—like no more wars unless they are fully funded with a new tax—will reduce the debt and eventually eliminate it. There is absolutely no need for the irrational hysteria of the deficit hawks in and out of government.

MAKE FREE TRADE FAIR

The policies we have followed for half a century have failed. Under them, dozens of U.S. industries have been gutted by imports, and new industries that could offset some of the job losses haven’t been given the support they need to help their products break through the obstacles to foreign markets.

A healthy national economy requires a balance of imports and exports. That’s the principle followed by our major trading partners. But imports into the United States have been out of balance with exports ever since the 1970s as each year imports overwhelm exports and drive up the trade deficit. This deficit, now the world’s largest, kills jobs. It urgently needs to be fixed; it is a much more pressing piece of business than the clueless ideological expansion of an idea—free trade—that may simply add to the instability of the U.S. economy. Instability benefits no one—except market speculators. It’s time our trade policy was asked to serve the interests of all Americans—not just the markets and the people who control those markets. A good place to start would be to limit subsidized imports and insist that foreign nations lower their barriers to our goods. That would go a long way toward ending our massive trade deficit.

Barriers to U.S. companies are real. Every year the U.S. trade representative compiles a report on the ways in which foreign governments block imports of U.S. products, the
National Trade Estimate Report on Foreign Trade Barriers.
The 2011 version runs 382 pages and describes in detail how other nations discriminate against U.S. services and products. Here’s a snapshot:

The European Union:
After many years of negotiations, the European Union maintains “significant barriers” to U.S. products, “despite repeated efforts to resolve them.”

Japan:
“The U.S. Government has expressed concern with the overall lack of access to Japan’s automotive market, as well as with specific aspects of Japan’s regulatory system that limit the ability of U.S. automobile and related companies to expand business in the Japanese market.”

China:
“Many U.S. industries complain that they face significant nontariff barriers to trade.... These include regulations that set high thresholds for entry into service sectors . . . and the use of questionable . . . measures to control import volumes.”

What’s most troubling about the 2011 report is that it contains nothing new; every year the report reads the same as the year before. The types of barriers change, but the obstacles remain, with the same result—many of our products cannot be sold in other countries.