Beyond Outrage: What has gone wrong with our economy and our democracy, and how to fix it - Robert B. Reich (2012)
Part Two. The Rise of the Regressive Right
People who call themselves conservative Republicans offer one option for what to do about all this, but their option would make matters worse. Their goal is not to conserve the best of what we now have; it is to return America to a time long before we achieved it. In truth, their agenda is regressive rather than conservative. They believe in social Darwinism, and many will stop at nothing to get their way. Their strategy is to divide working Americans and to convince them of the truth of a few very big lies.
The Rebirth of Social Darwinism
A fundamental war has been waged in this nation since its founding between progressive forces pushing us forward and regressive forces pulling us backward. We are in that battle once again.
Progressives believe in openness, equal opportunity, and tolerance. Progressives assume we’re all in it together: We all benefit from public investments in schools and health care and infrastructure. And we all do better with strong safety nets, reasonable constraints on Wall Street and big business, and a truly progressive tax system. Progressives worry when the rich and privileged become powerful enough to undermine democracy.
Regressives take the opposite positions. Right now their most prominent members are the House majority leader, Eric Cantor; the House budget chief, Paul Ryan; the former Speaker Newt Gingrich; the former senator Rick Santorum; the former majority leader Dick Armey; Governor Rick Perry; Representative Michele Bachmann; the former governor Sarah Palin; Representative Ron Paul; and the former governor Mitt Romney (to the extent he has any consistent principles at all); along with the antigovernment guru Grover Norquist, several Fox News anchors, the Supreme Court justices Antonin Scalia and Clarence Thomas, and the Republican strategist Karl Rove. Behind them—funding their activities but remaining out of the spotlight—are the media mogul Rupert Murdoch, the billionaires Charles and David Koch, and a coterie of other moneyed interests on and off Wall Street who view the regressive movement as their best means of maintaining their power and privilege and accumulating even more.
Many of these people would like to return America to the 1920s—before Social Security, unemployment insurance, labor laws, the minimum wage, Medicare and Medicaid, worker safety laws, the Environmental Protection Act, the Glass-Steagall Act, the Securities Exchange Act, and the Voting Rights Act. In the 1920s, Wall Street was unfettered, the rich grew far richer and everyone else went deep into debt, and the nation closed its doors to immigrants. These regressives also want to resurrect the classical economics of the 1920s—the view that economic downturns are best addressed by doing nothing until the “rot” is purged out of the system (as Andrew Mellon, Herbert Hoover’s Treasury secretary, so decorously put it).
Many would even like to take the nation back to the late nineteenth century—before the federal income tax, antitrust laws, the Pure Food and Drug Act, and the Federal Reserve. It was a time when so-called robber barons—railroad, financial, and oil titans—ran the country; a time of wrenching squalor for the many and mind-numbing wealth for the few, when the federal government was small, the Fed and the IRS had yet to be invented, state laws determined worker safety and hours, evolution was still considered contentious, immigrants were almost all European, big corporations and robber barons ran the government, the poor were desperate, and the rich lived like old-world aristocrats.
Listen carefully to today’s Republican right and you hear the same social Darwinism that was used more than a century ago to justify the brazen inequality of the Gilded Age: survival of the fittest. Don’t help the poor or the unemployed or anyone who’s fallen on bad times, they say, because this only encourages laziness. America will be strong only if we reward the rich and punish the needy.
It was an era when the nation was mesmerized by the doctrine of free enterprise but few Americans actually enjoyed much freedom. The financier Jay Gould, the railroad magnate Cornelius Vanderbilt, and the oil tycoon John D. Rockefeller controlled much of American industry; the gap between rich and poor had turned into a chasm; urban slums festered; children worked long hours in factories; women couldn’t vote, and black Americans were subject to Jim Crow; and the lackeys of the rich literally deposited sacks of money on desks of pliant legislators.
Most tellingly, it was a time when the ideas of William Graham Sumner, a professor of political and social science at Yale, dominated American social thought. Sumner brought Charles Darwin’s thinking to America and twisted it into a theory to fit the times. Few Americans living today have read any of Sumner’s writings, but they had an electrifying effect on America during the last three decades of the nineteenth century.
To Sumner and his followers, life was a competitive struggle in which only the fittest could and should survive—and through this struggle societies became stronger over time. A correlate of this principle was that government should do little or nothing to help those in need because that would interfere with natural selection.
Listen to today’s Republicans and you hear a continuous regurgitation of Sumner. “Civilization has a simple choice,” Sumner wrote in the 1880s. It’s either “liberty, inequality, survival of the fittest” or “not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members.” Sound familiar?
Mitt Romney isn’t as regressive as some, but like Herbert Hoover he doesn’t want the government to do much of anything about unemployment. As I said earlier, he accuses President Obama of having created an “entitlement society” that has fostered a culture of dependence. Romney thinks government shouldn’t try to help distressed homeowners but instead let the market “hit the bottom.” And he is dead set against raising taxes on millionaires, relying on the standard Republican rationale that millionaires create jobs and that benefits trickle down.
Rick Santorum says the president is getting America hooked on “the narcotic of dependency” and alleges the reason we have high unemployment is that people are deliberately staying out of the workforce in order to get unemployment benefits. “When you have ninety-nine weeks of unemployment benefits and a variety of other social safety-net programs, people can make choices that they otherwise wouldn’t make.”
Newt Gingrich not only echoes Sumner’s thoughts but mimics his reputed arrogance. Gingrich says we must reward “entrepreneurs” (by which he means anyone who has made a pile of money) and warns us not to “coddle” people in need. He calls laws against child labor “truly stupid” and says poor kids should serve as janitors in their schools. He doesn’t want to extend unemployment benefits because, he says, “I’m opposed to giving people money for doing nothing.”
Sumner, likewise, warned against handouts to people he termed “negligent, shiftless, inefficient, silly, and imprudent.” Here’s Sumner, more than a century ago: “Millionaires are a product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done.… It is because they are thus selected that wealth—both their own and that intrusted to them—aggregates under their hands.… They may fairly be regarded as the naturally selected agents of society.” Although they live in luxury, “the bargain is a good one for society.”
Other Republican hopefuls also fit Sumner’s mold. Ron Paul, who favors repeal of President Obama’s health-care plan, was asked at a Republican debate in September what medical response he’d recommend if a young man who had decided not to buy health insurance were to go into a coma. Paul’s response: “That’s what freedom is all about: taking your own risks.” The Republican crowd cheered. If the young man died for lack of health insurance, he was responsible. Survival of the fittest.
Read the writings of the current darling of conservative intellectuals, the sociologist Charles Murray, and you find the same philosophy at work. In his latest book, Coming Apart, Murray attributes the decline of the white working class to what he sees as their loss of traditional values of diligence and hard work. Increasingly addicted to drugs, failing to marry, giving birth out of wedlock, dropping out of high school, and remaining jobless for long periods of time, America’s white working class has, in Murray’s view, brought its problems on itself. Government has aided and abetted the decline by providing too much help in the form of social programs that encourage pathologies and dependence.
Murray and other neo-social Darwinists seem not to have noticed that for the past thirty years the wages of the old working class have declined, steady union jobs once available to them have disappeared, the economic base of their communities has deteriorated, and their share of the nation’s income and wealth has dramatically shrunk. It seems more likely that these are the underlying sources of the social problems and pathologies Murray chronicles, but this logic is inconvenient because it suggests that any solution requires reversing the widening inequities that have hit the old working class especially hard.
A hundred years ago social Darwinism offered a moral justification for the wild inequities and social cruelties of the late nineteenth century. It allowed John D. Rockefeller, for example, to claim the fortune he accumulated through his giant Standard Oil Trust was “merely a survival of the fittest.” It was, he insisted, “the working out of a law of nature and of God.” The social Darwinism of that era also undermined all efforts to build a more broadly based prosperity and rescue our democracy from the tight grip of a very few at the top. It was used by the privileged and powerful to convince everyone else that government shouldn’t do much of anything.
Not until the twentieth century did America reject social Darwinism. We created the large middle class that became the engine of our economy and our democracy. We built safety nets to catch Americans who fell downward, often through no fault of their own. We designed regulations to protect against the inevitable excesses of free-market greed. We taxed the rich and invested in public goods—public schools, public universities, public transportation, public parks, public health—that made us all better off. In short, we rejected the notion that each of us is on his or her own in a competitive contest for survival.
Even the GOP eventually disavowed social Darwinism. In the 1950s and 1960s, Republicans like Mark Hatfield of Oregon, Jacob Javits and Nelson Rockefeller of New York, Margaret Chase Smith of Maine, and Presidents Dwight Eisenhower and Richard Nixon lent their support to such interventionist measures as Medicare and the Environmental Protection Agency. Eisenhower pushed for the greatest public works project in the history of the United States—the National Interstate and Defense Highways Act, which linked the nation together with four-lane (and occasionally six-lane) interstate highways covering forty thousand miles. The GOP also backed large expansion of federally supported higher education. And to many Republicans at the time, a marginal income tax rate of more than 70 percent on top incomes was not repugnant.
The Republican Party of the 1950s and 1960s had its share of kooks and crackpots, such as Senator Joe McCarthy of Wisconsin, who conducted an infamous communist witch hunt, and General Douglas MacArthur, who told the Republican convention of 1952 that the Democratic Party had “become captive to the schemers and planners who have infiltrated its ranks of leadership to set the national course unerringly toward the socialistic regimentation of a totalitarian state.” But for the most part, the party’s elders controlled the nutcases.
Yet the Republican Party that emerged at the end of the twentieth century began to march backward to the nineteenth. Ronald Reagan lent his charm and single-mindedness to the movement, but he was not a true regressive. It was only when Newt Gingrich and his followers took over the House of Representatives in 1995 that regressives began retaking the GOP. The Koch brothers bankrolled the so-called Tea Party movement, and in 2010 Tea Party Republicans led the way toward capturing the House of Representatives and many state governments.
Through a sequence of presidential appointments, regressives have also gained a slim majority on the Supreme Court. Antonin Scalia and Clarence Thomas, along with Samuel Alito, John Roberts, and, all too often, Anthony Kennedy, claim to be conservative jurists. But they have proven to be judicial activists bent on overturning seventy-five years of jurisprudence by resurrecting states’ rights, treating the Second Amendment as if America still relied on local militias, narrowing the commerce clause, and, as I said earlier, calling money “speech” and corporations “people.”
Regressives have no new ideas for dealing with any challenge of the twenty-first century. Which of the 2012 GOP presidential aspirants do you think delivered the following words at the most recent Conservative Political Action Conference?
We have seen tax-and-tax, spend-and-spend reach a fantastic total greater than in all the previous … years of our Republic.… Behind this plush curtain of tax and spend, three sinister spooks or ghosts are mixing poison for the American people. They are the shades of Mussolini, with his bureaucratic fascism; of Karl Marx, and his socialism; and of Lord Keynes, with his perpetual government spending, deficits, and inflation. And we added a new ideology of our own. That is government give-away programs.… If you want to see pure socialism mixed with give-away programs, take a look at socialized medicine.
If you guessed Newt Gingrich, you could be forgiven. He didn’t utter these precise words, although he uses much the same language and offers the same themes. You’d also be wrong if you guessed Mitt Romney or Rick Santorum, Rick Perry, Sarah Palin, or Ron Paul. But again your mistake would be understandable, because any of them could have delivered this message, and all of them are delivering variations of it, over and over. So are Republican candidates for seats in Congress, state legislatures and governorships, and local elections. It’s the Republican message of 2012.
The correct answer, however, is Herbert Hoover.
Hoover didn’t deliver these words at the last Conservative Political Action Conference. He delivered them at the Republican National Convention in Chicago on July 8, 1952. Regressives haven’t come up with a single new idea since, or a new theme. But Hoover, you may remember, did not have a sterling record when it came to the economy. As president, he presided over the crash of 1929 and ushered in the Great Depression. He had no idea how to respond. By the time he was voted out of office in 1932, one out of four Americans was unemployed.
By 1952, Hoover was hidebound and irrelevant. After Dwight D. Eisenhower won the 1952 Republican nomination and went on to become president, he wisely disregarded everything Hoover had advised. Under Ike, the marginal income tax on America’s highest earners was raised to 91 percent. As I’ve said, Eisenhower also commenced the biggest infrastructure program in the nation’s history—the National Interstate and Defense Highways Act. He also expanded Social Security and signed into law the National Defense Education Act, which trained a whole generation of math and science teachers and upgraded American classrooms for the future. Under Ike, the Defense Department spawned technologies that would cement America’s leadership in aerospace and telecommunications for more than a generation.
The United States did not suffer fascism, socialism, deficits, and inflation, as Hoover had predicted. Instead, the U.S. economy roared. The median wage rose faster than ever before, and the incomes of America’s working class and poor rose at the fastest pace of all. And our democracy became sufficiently confident and expansive that within a few years we passed the historic Civil Rights Act of 1964 and the Voting Rights Act of 1965.
The Stop-at-Nothing Tactic
Social Darwinism is the regressives’ theme. Stop at nothing is their methodology. As the political analyst Michael Lind has noted, today’s Tea Party is less an ideological movement than the latest incarnation of an angry white minority—predominantly southern and mainly rural—that has repeatedly attacked American democracy in order to get its way. It’s no mere coincidence that the states responsible for putting the most Tea Party representatives in the House are all former members of the Confederacy. Of the Tea Party caucus, twelve hail from Texas, seven from Florida, five from Louisiana, and five from Georgia, and three each from South Carolina, Tennessee, and the border state Missouri. Others are from border states with significant southern populations and southern ties. The four Californians in the caucus are from the inland part of the state or Orange County, whose political culture was shaped by Oklahomans and southerners who migrated there during the Great Depression. This isn’t to say all Tea Partiers are white, southern, or rural Republicans—only that these characteristics define the epicenter of Tea Party Land.
The views separating these primarily white, southern, and rural Republicans from other Republicans mirror the split between self-described Tea Partiers and what had been the Republican establishment. In a poll of Republicans conducted for CNN last September, nearly six in ten who identified themselves with the Tea Party say global warming isn’t a proven fact; other Republicans say it is. Six in ten Tea Partiers say evolution is wrong; other Republicans are split on the issue. Tea Party Republicans are twice as likely as other Republicans to say abortion should be illegal in all circumstances, and half as likely to support gay marriage. Tea Party Republicans are more vehement advocates of states’ rights than other Republicans. Six in ten Tea Partiers want to abolish the Department of Education; only one in five other Republicans do. And Tea Party Republicans worry more about the federal deficit than about jobs, while other Republicans say reducing unemployment is more important than reducing the deficit.
In other words, the regressives who are taking over today’s GOP aren’t that much different from the social conservatives who began asserting themselves in the party during the 1990s, and, before them, the “Willie Horton” conservatives of the 1980s, and, before them, Richard Nixon’s “silent majority.” Through most of those years, though, the GOP managed to contain these white, mainly rural, and mostly southern radicals. For one thing, many of them were still Democrats. The conservative mantle of the GOP remained in the West and the Midwest—with the libertarian legacies of the Ohio senator Robert A. Taft and Barry Goldwater, neither of whom was a barn burner—while the center of the party remained in New York and the East, safely within the corporate establishment and Wall Street.
But after the Civil Rights Act of 1964, as the South began its long march toward the Republican Party and New York and the East became ever more solidly Democratic, it was only a matter of time. The GOP’s dominant coalition of big business, Wall Street, and midwestern and western libertarians was losing its grip. The watershed event was Gingrich’s takeover of the House in 1995. Suddenly, it seemed, the GOP had a personality transplant. The gentlemanly conservatism of the Republican House minority leader Bob Michel was replaced by the bomb-throwing antics of Gingrich, Dick Armey, and Tom DeLay. Almost overnight Washington was transformed from a place where legislators sought common ground into a war zone. Compromise was replaced by brinkmanship, bargaining by obstructionism, normal legislative maneuvering by threats to close down government—which occurred at the end of 1995.
Before then, when I’d testified on the Hill as secretary of labor, I had come in for tough questioning from Republican senators and representatives—which was their job. After January 1995, I was verbally assaulted. “Mr. Secretary, are you a socialist?” I recall one of them asking. The new crowd wasn’t willing to compromise on anything. Their distinguishing characteristic was that they’d stop at nothing to get their way. Led by Gingrich, House Republicans closed down the government when they didn’t get their way on the budget. Then stop-at-nothing regressives voted to impeach Bill Clinton. In the Senate, two-thirds of senators from the South voted for impeachment. (A majority of the Senate, you may recall, voted to acquit.)
America has had a long history of white southern radicals who would stop at nothing to get their way—seceding from the Union in 1861, repudiating federal laws designed to protect the rights of black citizens during Reconstruction, enacting Jim Crow laws, resisting desegregation orders in the 1950s, and refusing to obey civil rights legislation in the 1960s. The Gingrich-led government shutdown at the end of 1995 was a prelude to the 2011 showdown over raising the federal debt ceiling—which could have triggered a government default and risked the full faith and credit of the United States. Gingrich’s recent assertion during the Republican primaries that public officials aren’t bound to follow the decisions of federal courts is in the same tradition.
The GOP’s stop-at-nothing insurgents hate government more than they hate the national debt. They refuse to reduce that debt with tax increases, even with tax increases on the wealthy, because a tax increase doesn’t reduce the size of government. By contrast, what’s left of the Republican establishment—still occasionally found on Wall Street and in corporate suites—dislikes the national debt more than it dislikes government, and it opposes using the threat of a default as a bargaining chip. It doesn’t want America’s creditors to become spooked about the risk of runaway inflation or a future default, because it depends on smooth-functioning credit markets and a stable dollar.
Some Americans tolerate the stop-at-nothing assault on our system of government because they’re searching for a villain to blame for their continuing economic fears and insecurities, and government is a convenient scapegoat. At the same time, most of what government does that helps them is now so deeply woven into the thread of daily life that it’s no longer recognizable as government. Think of the indignant Republican voters who showed up at congressional town-hall meetings to protest President Obama’s health-care bill shouting, “Don’t take away my Medicare!” The Cornell political scientist Suzanne Mettler found that more than 44 percent of Social Security recipients say they “have not used a government social program,” as do more than half of families receiving government-backed student loans, 43 percent of unemployment insurance beneficiaries, and almost 30 percent of recipients of Social Security disability. Add in the relentless government hating and baiting of Fox News and Rush Limbaugh and his imitators on rage radio; include more than thirty years of Ronald Reagan’s repeated refrain that government is the problem; pile on hundreds of millions of dollars from regressive billionaires like Charles and David Koch, intent on convincing the public that government is evil, and some public support for stop-at-nothing tactics is not all that surprising.
Yet neither their stop-at-nothing tactics nor their social Darwinist message would have gained much traction were it not for the stunning failure of Democrats to make the case for a strong and effective government that responds to the needs of average people. There is no shortage of evidence—globalizing corporations, rip-roaring CEO pay, mass layoffs, declining pay for the bottom 90 percent, mine disasters, exploding oil rigs, malfeasance on Wall Street, and wildly escalating costs of health insurance—and it is not especially difficult to connect the dots. Yet too frequently Democrats have appeared timid and defensive; too often they’ve given in to regressive demands without a fight; and they’ve allowed the regressives’ big lies to go unrebutted for too long.
The Regressive Strategy: Divide and Conquer
When they’re not spouting social Darwinism or deploying stop-at-nothing tactics, regressives have been trying to convince Americans we can no longer afford to do what we need to do as a nation. They want to distract attention from the extraordinary accumulation of income, wealth, and power at the very top and the historically low tax rates paid by the rich. And they hope no one notices their push for additional tax cuts for the rich—making the Bush tax cuts permanent, further reducing taxes on the rich, eliminating the estate tax, and allowing the wealthy to shift ever more of their income into capital gains, taxed at 15 percent. They say America is broke. Their aim is to divide and conquer: pit unionized workers against nonunionized, public sector workers against nonpublic, older workers within sight of Medicare and Social Security against younger workers who don’t believe these programs will be there for them, and the middle class against the poor.
The strategy has three parts.
The first is being played out in the budget battles in Washington. By raising the alarm over deficit spending and simultaneously squeezing popular middle-class programs, regressives want the American public to view what happens in Washington as a giant zero-sum contest that some average Americans can win only if other average Americans lose. The president has already fallen into the trap by calling for cuts in Medicare, along with other cuts in programs the poor and the working class depend on, such as assistance with home heating, community services, and college loans.
The second part of the regressive strategy is being played out in the states, where public employees are being blamed for state budget crises. Unions didn’t cause these crises—state revenues plummeted because of the Great Recession—but regressives view them as opportunities to gut public employee unions, starting with teachers. Governor Scott Walker of Wisconsin and his GOP majority in the state legislature have ended most union rights for teachers. Ohio’s Republican governor, John Kasich, has tried to push a similar plan through a Republican-dominated legislature. New Jersey’s governor, Chris Christie, has attempted the same, telling a conservative conference, “I’m attacking the leadership of the union because they’re greedy, and they’re selfish and they’re self-interested.”
As I’ve noted, public employees don’t earn more than their private sector counterparts when you take account of their education. In fact, over the last fifteen years the pay of public sector workers, including teachers, has dropped relative to private sector employees with the same level of education. Moreover, most public employees don’t have generous pensions. After a career with annual pay averaging less than $45,000, the typical newly retired public employee receives a pension of $19,000 a year. Yet regressives would rather go after teachers and other public employees than have us look at the pay of Wall Street traders, private-equity managers, and heads of hedge funds whose lending and investing practices were the proximate cause of the Great Recession to begin with and who owe their jobs to the giant taxpayer-supported bailout.
The third part of the divide-and-conquer strategy is being played out in the Supreme Court, which has been politicized more than at any time in recent memory. On January 21, 2010, as I noted earlier, a majority of the justices ruled that corporations have a right under the First Amendment to provide unlimited amounts of money to political candidates. Citizens United v. Federal Election Commission is among the most politically motivated and legally grotesque decisions of our highest court—ranking right up there with Bush v. Gore and Dred Scott v. Sandford. Among those who voted in the affirmative were Clarence Thomas and Antonin Scalia, both of whom have become active strategists in the Republican Party. Two months after the Citizens United decision, the U.S. Court of Appeals for the District of Columbia Circuit, relying on Citizens United, ruled that the existing $5,000-per-year limit on the amount any individual can contribute to a super PAC or other independent group also violates the First Amendment.
These three aspects of the regressive strategy—a federal budget battle to shrink government focused on programs the vast middle class depends on; state efforts to undermine public employees whom the middle class depends on; and a Supreme Court dedicated to bending the Constitution to enlarge and entrench the political power of the wealthy—fit perfectly and diabolically together. They pit average working Americans against one another, distract attention from the almost unprecedented concentration of wealth and power at the top, and conceal regressive plans to further enlarge and entrench that wealth and power.
The Ten Biggest Economic Lies
Why the regressive right is wrong—dead wrong—and the ten biggest lies they’re peddling. (4:08)
A final aspect of the regressive strategy is to tell a few big lies about the economy over and over. You hear them repeated endlessly on right-wing radio and on Fox News, and you read them incessantly on the editorial pages of The Wall Street Journal. Together they paint a picture of an America in which social Darwinism replaces the public good. Demagogues through history have known that big lies, repeated often enough, start being believed—unless they’re rebutted. George Orwell once explained that when a public is stressed and confused, a big lie told repeatedly and unchallenged can become accepted truth. Make sure you know the facts and spread them.
1. Tax cuts for the rich trickle down to everyone else, while higher taxes on the rich hurt the economy and slow job growth. Untrue. Look at recent history. Both Ronald Reagan and George W. Bush cut taxes on the rich. Most Americans’ wages began flattening under Reagan and have dropped since the start of Bush’s administration. Trickle-down economics is a cruel joke.
As I’ve said, from the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were more than 52 percent—far higher than they’ve been since. Yet the economy grew faster during those years than it has since. During almost three decades spanning 1951 to 1980, when the top rate was between 70 percent and 91 percent, average annual growth in the American economy was 3.7 percent. Between 1983 and the start of the Great Recession, when the top rate dropped to between 35 percent and 39 percent, average growth was 3 percent.
Regressives say small businesses would be hurt by a higher marginal tax. Don’t believe this, either. Only just over 1 percent of small-business owners earn enough to be taxed at the top rate—and that’s just on the portion of their incomes exceeding $379,000.
2. American corporations would create more jobs and spur the economy forward if their taxes were lower. Wrong again. American corporations don’t need tax cuts. As I’ve noted, many of them, like General Electric, manipulate the tax code so they don’t pay any taxes at all. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed. Big companies are sitting on more than $2 trillion of cash right now that they don’t know what to do with.
The reason they’re not investing in additional capacity or many new jobs has nothing to do with taxes. It’s that they don’t see enough customers with enough money in their pockets to buy what the additional capacity would produce. Businesses are spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy last year came from businesses rebuilding their inventories. But without more consumer spending, businesses won’t spend more. A robust economy can’t be built on inventory replacements.
The wrongheaded idea that corporations need tax cuts to create jobs is also being used by regressive governors who are cutting business taxes willy-nilly in order to compete with other states that are doing the same. They’ve entered into a giant zero-sum game that doesn’t create a single new job but robs the states of money needed for critical investments in schools and infrastructure. Florida’s governor, Rick Scott, for example, says his corporate tax cuts “will give Florida a competitive edge in attracting jobs.” But Florida is simultaneously cutting education spending by $3 billion, when the state already ranks near the bottom in per-pupil spending and has one of the nation’s lowest graduation rates. Even if Scott’s tax cuts create jobs, the jobs will pay peanuts.
3. We’d have more jobs and a better economy if we shrank the size of government. Wrong. Shrinking government results in fewer government workers—including teachers, firefighters, police officers, and social workers at the state and local levels, and safety inspectors and military personnel at the federa level. And it results in fewer government contractors who therefore employ fewer private sector workers. This is the same claptrap regressives have been mouthing for decades. Their ultimate goal, in the words of the regressive guru Grover Norquist, is to take government “down to the size where we can drown it in the bathtub.”
I recently debated a conservative Republican who insisted the best way to revive the American economy was to shrink government. When I asked him to explain his logic, he said, simply, “Government is the source of all our problems.” When I noted government spending had brought the economy out of the Great Depression, he disagreed. “The Depression ended because of World War II,” he pronounced, as if government had played no part in World War II.
4. We’d have a stronger economy if we had fewer regulations. Untrue. As I said before, corporations exist for one reason only—to make a profit and thereby increase the value of their shares, not to protect the public. Yet public health and safety, fairness to small investors, and a sustainable environment are all public goods. Without them, we’d be the poorer for it. Regulations make sense where the benefits to the public exceed the costs, and regulations should be designed to maximize those benefits and minimize those costs. Period.
5. The economy would improve if we cut the budget deficit right now. Baloney. With so many Americans still out of work, our first priority must be jobs and growth. Government spending counteracts the shortfall in private spending. Budget cuts now only increase unemployment and reduce tax revenues. We should start cutting the federal budget only when the economy is back on track, when unemployment drops to around 5 percent.
Don’t get me wrong. The national debt is a problem, but the ratio of debt to the economy’s output of goods and services this year is not nearly as high as it was after World War II—when it reached 120 percent. If we move more quickly toward a full recovery, the debt-to-GDP ratio will fall, as it did in the 1950s. Revenues will pour into the Treasury, and much of the current “budget crisis” will evaporate. Growth is the key. When more people are working, more companies are profiting, the economy is expanding, revenues pour into national treasuries, and the debt declines relative to the economy.
When the economy grows more slowly or contracts, the opposite occurs. Economies can fall into vicious cycles of slower growth and lower tax revenues. If governments then cut public spending, the vicious cycle can become an austerity death trap. The debt-to-GDP ratio worsens because the economy shrinks even faster. Greece is already in the trap. Its output has plunged since it adopted austerity measures and slashed its budget in an attempt to gain control over its debt. Spain and Italy are perilously close to the austerity trap. Britain, France, and Germany are tiptoeing up to it. If regressives have their way, America will join them.
The Fed can’t possibly generate a buoyant recovery on its own. Without an expansionary fiscal policy, the Fed’s low interest rates have little effect. Companies won’t borrow in order to expand and hire more workers unless they’re confident they will have customers for what they produce. And consumers won’t borrow money to spend on goods and services unless they’re confident they’ll have jobs.
The recent downgrade of America’s debt by Standard & Poor’s (S&P) is irrelevant. America’s borrowing costs are lower than they’ve been in many years. S&P downgraded the debt because Congress and the president didn’t reach a long-term debt agreement to S&P’s liking. Pardon me for asking, but who gave S&P the authority to tell America how much debt it has to shed, and how? If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long-term debt—or, more accurately, the ratio of debt to GDP—is none of S&P’s business. S&P’s intrusion into American politics is also ironic because much of our current debt is directly or indirectly due to S&P’s failure (along with the failures of the two other major credit-rating agencies, Fitch and Moody’s) to do its job before the financial meltdown. Until the eve of the collapse, S&P gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations. Had S&P fulfilled its responsibility and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have become so large—and their bursts wouldn’t have brought down much of the economy. You and I and other taxpayers wouldn’t have had to bail out Wall Street; millions of Americans would now be working instead of collecting unemployment insurance; the government wouldn’t have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.
One final point you should know about the federal budget: the mammoth deficits that will be racked up beyond 2020 are due almost entirely to rapidly rising health-care costs along with seventy-seven million baby boomers whose bodies will slowly be deteriorating. At the rate health-care costs are already rising, they’ll also drive average American families into ruin. Which raises the next regressive falsehood …
6. Medicare and Medicaid have to be scaled back. Untrue. The reason their costs are rising so fast is that the nation’s overall health-care costs are rising so fast. A related lie: The way to slow the growth of Medicare is to give seniors vouchers that can be cashed in for private insurance. That’s the House Republican plan, and it’s dead wrong. Any budget savings would come directly out of the pockets of seniors, as the vouchers fall farther and farther behind the rising costs of health care. The inevitable result would be that more and more seniors would be priced out of the market for health care as the underlying costs of health care continue to soar. A far better way to slow medical costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to get lower prices and to move from a fee-for-service system to a fee-for-healthy-outcomes system. And because Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone. I’ll get to this in more detail a bit later.
7. Our safety nets are overly generous. As I’ve said, in Mitt Romney’s standard stump speech he charges President Obama with creating a nation of dependents: “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society.” Rick Santorum says, “There’s a push to get more and more people dependent.” Newt Gingrich calls Obama “the best food-stamp president in American history.”
What’s their evidence? They point to federal budget data showing that direct payments to individuals shot up by almost $600 billion, a 32 percent increase, since the start of 2009. They also refer to census data showing that 49 percent of Americans now live in homes where at least one person is collecting a federal benefit—Social Security, food stamps, unemployment insurance, workers’ compensation, or subsidized housing. That’s up from 44 percent in 2008. And they trumpet Social Security Administration figures showing that the number of people on Social Security disability jumped 10 percent during Obama’s first two years in office. They argue that our economic problems stem from this sharp rise in “dependency.” Get rid of these benefits and people will work harder.
But again they have cause and effect backward. The reason for the rise in food stamps, unemployment insurance, and other safety-net programs is that Americans got clobbered in 2008 with the worst economic catastrophe since the Great Depression. They and their families have needed whatever helping hands they could get.
If anything, America’s safety nets have been too small and shot through with holes. That’s why the number and percentage of Americans in poverty have increased dramatically over the past three years. This is the real scandal. For example, only 40 percent of the unemployed qualify for unemployment benefits because they weren’t working full-time or long enough on a single job before they were let go. The unemployment system doesn’t take account of the fact that a large portion of the workforce typically works part-time on several jobs and moves from job to job.
Republicans also promise to repeal President Obama’s health-care law, which covers thirty million more Americans than were covered before. That law still leaves more than twenty million without health insurance. They and any others who lose medical coverage if the new law is repealed get emergency care when they’re in dire straits in any event—hospitals won’t refuse them—but we all end up paying indirectly.
Regressives pretend they’re about opportunity. But in reality, as I’ve said before, they’re promoting social Darwinism.
8. Social Security is a Ponzi scheme. Don’t believe it. In a former life I was a trustee of the Social Security trust fund, and I know how the Social Security actuaries make their projections. Social Security is solvent for the next twenty-six years. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. In 2012 that ceiling is $110,100.
Until 2010, Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government. Now that Social Security has started to pay out more than it takes in, it can simply collect what the rest of the government owes it. This will keep it fully solvent for those twenty-six years. The only reason there will then be a problem is that in 1983, when Alan Greenspan’s Social Security commission was supposed to have fixed the system for good—by gradually increasing payroll taxes and raising the retirement age (early boomers like me can start collecting full benefits at age sixty-six; late boomers born after 1960 will have to wait until they’re sixty-seven)—it failed to take account of widening inequality. The Social Security payroll tax applies only to earnings up to a certain ceiling, which rises annually according to a formula roughly matching inflation. In 1983, the ceiling was set so the Social Security payroll tax would apply to 90 percent of all wages covered by Social Security, and that 90 percent figure was built into the Greenspan Commission’s fixes. Today, though, the Social Security payroll tax affects only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. So the logical response to Social Security’s long-term problem is to raise the ceiling on income subject to the Social Security tax, rather than to reduce benefits or raise the age of eligibility.
9. It’s unfair that middle- and lower-income Americans have been paying a smaller share of federal income taxes and some pay no income tax at all. There’s nothing unfair about it. Fairness requires that people who make more money pay a higher portion of their incomes in taxes than people with less money. That’s called a progressive tax system, and it’s been a foundation stone of America’s tax code. Because the share of total income going to the top 1 percent has doubled since the late 1970s, we’d expect their share of total taxes to have doubled as well, and the share paid by middle- and lower-income Americans to drop. In fact, the top 1 percent’s share of total taxes has not kept pace with their increasing share of total income. If the tax system were totally fair, their share of tax revenues would be more, and everyone else’s share would be less.
Besides, the income tax is only one of the taxes Americans pay. Middle- and lower-income Americans are now paying a significantly larger share of their incomes than are wealthy Americans in payroll taxes (Social Security and Medicare), state and local sales taxes, user fees, and property taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid 12.3 percent of their incomes in state and local taxes in 2010. When all federal, state, and local taxes are taken into account, the bottom fifth paid a stunning 16.3 percent of their incomes in taxes, on average, a larger percentage than Mitt Romney paid on his $21 million of income that year.
10. A flat tax would be fairer. Don’t believe it. All flat-tax proposals benefit the rich more than the poor for one simple reason: today’s tax code is still at least moderately progressive. The rich usually pay a higher percentage of their incomes in income taxes than do the poor. A flat tax would eliminate that slight progressivity.
Flat taxers pretend a flat tax is good public policy, for two reasons. First, they say, it would simplify paying taxes. Baloney. Flat-tax proposals don’t eliminate all deductions. In every plan I’ve seen, people with families will still be able to deduct their dependents, while single people will pay a higher rate, businesses will deduct their expenses, and in most plans people with homes will still be able to deduct interest on their mortgages. All this means most taxpayers would still have lots of paperwork.
Second, proponents of a flat tax say it’s fairer than the current system because a flat tax “treats everyone the same.” The truth is that in the current tax code, everyone whose income reaches the same bracket is treated the same as everyone else whose income reaches that bracket (apart from various deductions, exemptions, and credits, of course). For example, no one pays any income taxes on the first $20,000 or so of his income. People in higher brackets pay a higher rate only on the portion of their income that hits that bracket—not on their entire income. Republicans have tried to sow confusion about this. They want Americans to believe, for example, that if the Bush tax cuts ended, small-business owners with incomes of $251,000 a year would have to pay 39 percent of their entire incomes in taxes rather than 35 percent. Wrong. They’d only have to pay the 39 percent rate on $1,000—the portion of their incomes over $250,000.
Get it? We already have a flat tax—flat within each bracket. The real problem is the top brackets are set too low relative to where the money is. The topmost bracket starts at $388,350 on income earned this year. People with incomes higher than that pay 35 percent—again, only on that portion of their incomes exceeding $388,350. This means a doctor who’s making, say, $390,000 a year pays the same income tax rate as a plutocrat pulling in $2 billion or $20 billion. Regressives are pushing the flat tax as a smoke screen. They’d rather not have anyone talk about the unfairness and fiscal absurdity of the current system.
These ten whoppers have been repeated so often by regressives and their media outlets that many Americans have started to believe them. But every one of them is a lie.