The Betrayal of the American Dream

by Donald L. Barlett

  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 expr
essed 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.

  What can be done?

  The most obvious solution is to enforce existing trade laws by taking action against governments that unfairly subsidize their own industries and undermine the jobs of U.S. workers. This could be accomplished in some cases only by imposing tariffs—perhaps even high tariffs. The very mention of tariffs infuriates free-traders and the ruling class. But the U.S. economy is in a battle for its survival. Our competitors will not safeguard our interests over their own. Nor will corporations whose wealth is held substantially outside U.S. jurisdiction. We have to take responsibility. But unless we are willing to enforce the law, other countries will continue to ignore U.S. pleas to open their markets to our products.

  For years American manufacturing has suffered at the hands of economists from leading business schools who have downplayed its importance in the economy. This needs to change. The head of a Silicon Valley technology firm, Henry Nothhaft, argues that domestic manufacturing is essential not only because of the jobs and security it provides to workers, but also because it is crucial to innovation.

  “R&D de-coupled from manufacturing eventually results in the loss of incremental innovation which occurs on the factory floor,” Nothhaft has written. Because of corporate America’s obsession with downsizing and short-term profits, he says, “we have gutted our ability to build the most advanced high-tech products of tomorrow.” Similarly, Nothhaft says, “for every manufacturing job lost, ripple effects of job destruction and income erosion spread like a plague throughout the economy.”

  Relatively new companies like Google are often cited as classic examples of the entrepreneurial American venture that comes along in every era that injects life into the economy. But not every company can be, or should be, a Google. Our economy still runs on products that have been around for decades and are essential to the nation’s well-being—its consumers and workers. As Ralph Gomory, the onetime head of research at IBM, told a congressionally-appointed study committee in 2011: “To prosper a country needs to make a range of good products and services, and then keep after them year after year, constantly learning and improving their capabilities to stay with or ahead of the competition.” Those companies need congressional support quite as much as, if not more than, the multinational corporations. If they are to grow, they must find and develop markets abroad as well as domestically.

  Though the nation has done little to alter the free-trade policies that have destroyed so many jobs, hopes began to rise recently that the long slide in manufacturing employment as a result of those policies might be over. For the first time in many years, factories were consistently adding jobs; 400,000 were added in 2010–2011. In his State of the Union address in 2012, President Obama singled out manufacturing for special mention: “We have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it.”

  It may be just another one of those economic mirages that have spurred false hopes over the years. But it would be a defining moment in rebuilding the middle class if the slide in manufacturing jobs were to be significantly reversed. At the very least, what we must do is halt the growth in the trade deficit—to stop the bleeding that has resulted from the carnage in lost plant jobs in recent decades, to ensure that the manufacturing sector that’s left is stabilized and bolstered by a change in our trade policies. That alone would be a major victory.

  INVEST IN AMERICA

  There is only one player capable of offsetting the decline in private investment in this country that has resulted from U.S. corporations sending jobs and plants offshore and investing in other countries: the federal government.

  Washington has the power to make an investment that would dramatically benefit the middle class as well as all other citizens. Instead, Washington is paralyzed. Intimidated by the deficit hawks who are funded by the ruling class, they decry any action that requires more federal spending. Contrary to what you hear and read in much of the media, in our view the nation should not be worried about federal spending right now. The federal deficit is an important, long-term problem, but unless we restore prosperity by creating more good-paying jobs, worries over the deficit will be moot.

  One way for the government to create jobs would be to make a massive investment in infrastructure—not a make-work program, but a broad-based investment phased in over many years. This would boost the economy by creating millions of jobs in construction, manufacturing, and other industries. This would be a wise investment even if the economy was in fine shape and unemployment was low, because the country’s basic infrastructure is falling apart from years of neglect.

  The American Society of Civil Engineers (ASCE) issues a periodic report on the state of the nation’s bridges, highways, dams, rails, waterways, ports, water systems, and tunnels—all the components of our nation’s infrastructure. Nearly all of these facilities are in such bad shape that they get no better than a D grade from the ASCE. “Delayed maintenance and chronic underfunding are contributors to the low grades in nearly every category,” the ASCE concluded in its 2009 report. Just fixing current structural problems and upgrading those facilities would cost $2.2 trillion, the ASCE estimated. The deterioration is accelerating at such a pace that the ranking of the United States on infrastructure plunged from first in 2006 to sixteenth in 2011, according to the World Economic Forum.

  Like so many other aspects of the economy described in this book, infrastructure investment is another casualty of the political dominance of the ruling class, whose private planes and gated residences lead them to think that infrastructure is less than essential to them. From 1950 to 1979, during a period when the United States funded broad-based public programs, its investment in transportation, water management, and electricity transmission grew at an average rate of 4 percent each year—about the same as the growth of the economy during that time. But from 1980 to 2007, when U.S. investment in infrastructure was scaled back to 2.3 percent, economic growth also fell, to an average annual rate of 2.9 percent, according to a 2009 study by the Political Economy Research Institute (PERI). “Faster public investment growth produces faster overall growth,” concluded PERI.

  In contrast, China and Japan, the chief competitors of the United States in Asia, are investing heavily in infrastructure—railroads, highways, Internet networks, ports, airports, and all the basic services that promote commerce and create jobs. Visitors to those nations are often stunned by the sophistication of the new technology that the Chinese and Japanese are pouring into their basic infrastructure. Visitors arriving at JFK before driving to New York City don’t have quite the same sense of awe.

  RETHINK TRAINING

  The nation’s federal training program for workers who lose their jobs to imports or offshoring is sorely in need of reform. Interviews with laid-off workers showed a pattern of frustration with the Trade Adjustment Assistance (TAA) offices in many states. Although workers were appreciative that the program existed, many reported that their caseworkers were overwhelmed with work, rarely if ever returned their calls, and sometimes weren’t sure if they could even be of help. Others told of TAA caseworkers who were so overworked that they refused to give their last names, presumably to make sure they weren’t contacted outside of work hours. Other workers who had been laid off complained that
TAA was out of touch with reality.

  Terri Steger was a systems analyst for AT&T and one of its contractors for thirty-five years in Milwaukee before her IT job and the jobs of her coworkers were shipped to India in 2009. She soon found herself in an orientation class sponsored by the local TAA office in Milwaukee to help her and others who had lost their jobs decide on their next career. Steger said that one of the federal officials suggested to the group that they consider information technology.

  “We raised our hands and said, ‘Wait a minute, you might want to rethink that, because we’re all in information technology and our jobs are in India right now,’” she said.

  An even greater shortcoming in U.S. training programs is the lack of well-funded, well-publicized, and highly respected apprenticeship programs. Such programs would give high school graduates who are unable to go to college, or whose skill sets are in other areas, a way to obtain training that would make them valuable to employers and enable them to earn a good living. The U.S. emphasis on college at the expense of apprenticeship programs has long been a complaint of many American industrialists, sociologists, and other experts. In other countries, notably Germany and Switzerland, apprenticeship programs are considered a fundamental part of secondary education and have been a major factor in the manufacturing success of those countries.

  UPHOLD THE LAW

  It sounds almost old-fashioned: to protect the middle class and all other Americans from the charlatans of Wall Street who served up the great housing meltdown, let’s start enforcing the law. The triumph of the ruling class is so complete that there’s no longer serious prosecution for violations of fraud and other statutes, which, if enforced, might discourage financial bandits in the future. If people end up in prison for committing a misdemeanor, surely they could go there for destroying the lives of working people.