Who Stole the American Dream? (6 page)

But that is not how the bill was sold to the public.

“
A big part of the selling point on this bankruptcy law was it will preserve jobs, and it will preserve assets for employees—go back and read the legislative history,” Elizabeth Warren, then a bankruptcy law professor at Harvard, told me in 2006. “But what happened was that the text of the law clearly gives a priority to the banks and the other creditors who protect themselves by contract. They come ahead of all of the employees and all the pensioners…. The sophisticated guys will walk out with everything and the employees and pensioners will be left with nothing.”

That same 1978 Congress tucked into the omnibus tax bill a small-print provision with enormous consequences for the overwhelming majority of American families. It was the antiseptically titled 401(k) subparagraph that eventually became a vehicle for
many corporations to off-load hundreds of billions of dollars in pension expenditures onto their employees, a major step that increased company profits and CEO bonuses and left most of the middle class with the job of financing their own retirement.

The 401(k) provision was originally introduced as a tax break for deferred compensation for corporate executives at Xerox and Kodak by Representative Barber Conable of New York, the ranking Republican on the tax-writing House Ways and Means Committee, whose district included head offices of both Kodak and Xerox. Then in 1981, the Reagan Treasury Department, under some ingenious prodding from corporate tax consultants, decided that the 401(k) clause could also apply to rank-and-file employees. Suddenly, visions of a vast new market attracted mutual fund managers and they rolled out the 401(k) red carpet at company after company, promoting the virtues of the new tax shelter to millions of middle-class Americans.

The result was a financial upheaval that revamped most of the old corporate system of providing lifetime pensions to rank-and-file employees and left the middle and lower middle class constantly scrambling to scrape together enough savings for their supposedly golden years. Under the old lifetime pension system, companies guaranteed monthly retirement checks to employees for as long as they lived. Under the new 401(k) system, those monthly company checks were gone. It was now up to employees to provide for their own retirement savings and to manage their money for long-term security, a task beyond the capability of millions, as the record now shows.

Finally, business felt powerful enough to challenge President Carter on taxes. In his 1976 campaign, Carter had derided the U.S. tax code as “a disgrace to the human race” because it had so many loopholes for the wealthy and for corporations, enabling them to reduce or escape taxes. So Carter sent Congress a tax bill that would close many
of these loopholes and end tax breaks for the affluent while cutting taxes for lower-income families.

Congress, by now under the sway of the strong business lobby, balked at Carter’s bill and then started rewriting it to tilt it—not against, but in favor of business and the wealthy.

Instead of tax increases, the bill came out with $18.7 billion in tax cuts, including a deep cut in the maximum capital gains tax rate for investors from 49 to 28 percent, a cut in the top corporate tax rate from 48 to 46 percent, and even more generous write-offs for small businesses. Although the size of the tax cuts was relatively small, it marked a watershed in Washington’s tax and economic policies. Instead of following the traditional pattern of using the tax system to redistribute income from the affluent and from corporations to the less well-off, the 1978 tax bill charted the opposite course, a course that would be pursued by Ronald Reagan and George W. Bush. It gave the economic benefits of tax law primarily to the economic elites that were now exercising increased political power.

For business, the successful mutiny against Carter’s tax bill was a political turning point. It had an electrifying effect in the corporate world, according to Arthur Levitt, who was then chairman of the American Stock Exchange.

“After that,” Levitt told me, “
business began to see they could get … the things they wanted.”

With that victory, coming on the heels of the earlier triumphs over labor and consumer groups, Corporate America tasted its own political power and warmed to the Washington power game. Corporate leaders suddenly saw the multibillion-dollar benefits they could reap, both for their companies and for themselves personally, by investing mere millions in the high-stakes competition for political influence. With their string of victories, especially on the tax bill, they sharpened their focus on Washington and how it eases or tightens or tilts the rules for the American economy.

The tax victory was one of those pivotal moments in politics, just as in sports, when the lead changes hands and the dynamics of the
game change—not just in terms of power, but substantively as well. For the victories that business won in the Carter Congress dramatically shifted the thrust and direction of America’s economic policies to suit the agenda of the business elite. Those victories set a pattern pursued to this day.

Years later, economists and historians would identify the late 1970s as the watershed period when an economic wedge started to be driven into the American workforce, beginning to divide the nation into Two Americas—corporate CEOs and the financial elite put on a sharp upswing, and average Americans left stuck in a rut.

MANY OLDER AMERICANS
have largely forgotten, and so many young Americans have never known, what American politics was like before the late 1970s. The dynamics of that earlier era offer important lessons for solutions to our current predicament.

Unlike most Americans today, who feel ignored by the powers-that-be in Washington and politically powerless to alter that situation, millions of Americans in the 1960s and 1970s believed in the power of ordinary people. They believed that by acting together, they could shape the nation’s agenda and influence government policy. Average Americans felt confident that they counted politically. They acted on that confidence, and they generated a period of unprecedented citizen activism from the late 1950s through the early 1970s. It was the political as well as the economic heyday of the middle class.

Ordinary Americans fought for change—and they won change—through the demands of the civil rights movement and the women’s movement for equal rights; through the environmental movement and its fight for clean air and water; through the push of the consumer movement for a better quality of life and more honesty in the marketplace; through the battle of the trade union movement for a solid middle-class standard of living; and through the peace movement and its mass protests to end the war in Vietnam.

The gains didn’t come easily. But ordinary people could see over time that Congress and the White House, in Republican as well as Democratic administrations, did respond to popular pressures. They came to understand that by putting themselves physically on the line through direct citizen action, they could exercise real political clout in the halls of power.

People could see, through a series of successes, that the middle class could have a clear impact on policy. They saw that they could enlarge the American Dream for average Americans.

One balmy August morning in 1963, in the pink-orange light of daybreak that silhouetted the Washington Monument, the buses rolled into the nation’s capital. Greyhounds and Trailways arrived from New York and Connecticut and Pennsylvania. More came from
Ohio and Michigan and Illinois. Many had been traveling through the night, and now at their destination, the bus drivers parked along Constitution Avenue and disgorged throngs of ordinary people onto the massive green Washington Mall. People made their way on foot toward the Lincoln Memorial. The day was not yet hot, but the people moved slowly, quietly, talking among themselves expectantly.

Soon, the pilgrimage was joined by civil rights activists who had driven from Alabama, Mississippi, and Tennessee. Others flew or took the train from Georgia, Virginia, or the Carolinas. There were Freedom Riders, black and white, who had been savagely bludgeoned by a white mob in Montgomery or whose Greyhound bus had been torched by a Molotov cocktail outside Anniston. There were college students such as John Lewis, whom I had seen beaten and burned with lit cigarettes while trying to desegregate lunch counters in Nashville; preachers such as Reverend Fred Shuttlesworth from Birmingham, who had been slammed against a church wall by a high-powered police fire hose, and youngsters who had braved nightsticks and snarling police dogs. There were doctors and lawyers and business proprietors who had used their homes or stores as collateral for bond to free thousands of civil rights marchers across the Old Confederacy. And there were professors, ministers, schoolteachers, and ordinary people from the nation’s heartland, moved by conscience to bear witness in the March on Washington.

The powers-that-be were braced for the worst. They feared an emotional crowd worked into a volatile fever by its leaders or provoked into a wild rampage by racist troublemakers. But instead, on August 28, 1963, the huge middle-class throng, mostly Negroes but many whites, too, were peaceful, calm, and dignified. As Russell Baker wrote for
The New York Times
, “
No one could remember an invading army quite as gentle as the 200,000 civil rights marchers who occupied Washington today.”

Fresh from reporting in the Deep South, I was struck by the relaxed and cheerful mood. Parents played with children or lolled under the low trees. Others sauntered on the Mall or spread their blankets beneath the rising sun, fathers dozing off with newspapers
folded over their eyes. The event had the sunny air of a mass picnic. But it was no picnic. This was history in the making, the largest peaceful demonstration for a social cause that Washington had ever seen. It was a festival of democracy—a mass celebration of people power and a citizens’ call for action by the government to mend the injustice of racist discrimination. As the Reverend Martin Luther King, Jr., said, to resounding cheers, this gentle but expectant crowd felt “the fierce urgency of now.”

Few people in America knew better than King how to move a nation and how to shake the power structure out of its reluctance and inertia by dramatizing social and economic injustice. In nearly a decade since the Supreme Court’s 1954 decision ordered school desegregation, civil rights legislation had been bottled up in Congress. It was the power of ordinary middle-class Americans, the exercise of grassroots democracy, that broke the logjam. It was the lunch counter sit-ins, the brave Freedom Riders, and the students marching through cities like Birmingham that were altering the attitudes of a nation and the political climate in Washington, by exposing the ugly face of racism and the harsh wages of social and economic injustice in America.

To highlight their cause, Martin Luther King, Jr., and his Southern Christian Leadership Conference had targeted Birmingham in 1963 because of the city’s mentality of massive resistance and the no-holds-barred enforcement of segregation by Birmingham’s public safety commissioner, Eugene (Bull) Connor.

By then, most southern cities had begun desegregating, but Birmingham remained what King called “
probably the most thoroughly segregated city” in America, with an “ugly record of police brutality.” There had been twenty-two unsolved bombings of Negro homes and churches. Jewish temples were floodlit and under guard at night. People, fearing informers, were cowed into silence. Veteran
New York
Times
correspondent Harrison Salisbury had called Birmingham “
a community of fear.” One of the first people I met in Birmingham was an outspoken lawyer named Chuck Morgan, who admitted his fear and showed me the loaded .38-caliber pistol that he carried in his briefcase for self-defense.

King banked on the psychological leverage of people power to prick the conscience of hidden moderates in Birmingham by confronting the city’s police with an army of students, calling for the desegregation of department store facilities and for better job opportunities for qualified Negroes. Led by their pastors, teenagers would march through downtown Birmingham day after day, singing “We Shall Overcome” in the face of billy clubs, jet-stream fire hoses, and snarling police dogs. What segregationist diehards failed to grasp was that the images of cops brutally beating peaceful students—beamed nightly to the nation on TV—were King’s trump card, his direct channel of influence on political Washington.