Download File - SHARING PROSPERITY USA: Reducing Income

Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
Summary
Graphs reveal a troubling and evolving
American story: a story of growing prosperity for
the wealthy and well-connected while the poor
and middle class struggle. As troubling, is
mounting evidence the nation’s political system is
working overtime to feather the nest of the
fortunate and no longer working to devise policies
and enact legislation to promote upward economic
and social mobility for the vast majority of citizens. Is the
American dream receding?
The top graph shows the nation’s economic system
went off the track in the late 1970s after three decades of
economic growth during which all income groups shared
impressive income gains. Since then only upper income
households have prospered. The second graph shows the
interests of Wall Street and Main Street parted ways around
the same time with the economy sheading its grace and
profits on Wall Street while Main Street sputtered along.
What role did Reaganomics play in this divergence?
The third and fourth graphs question the widely
held belief, especially in Republican circles, that the GOP
is to be trusted more than the Democratic Party when it
comes to stewardship of the economy. From Truman
through Bush II under Democratic administrations on
average 2 million jobs were created per year compared to
1 million under Republicans. Reagan heads the list in job
creation per year on the Republican side but is well
behind Johnson, Carter and Clinton. When income growth
rates from 1948-2005 are considered, under Democratic
administrations all income categories did well with lower
income categories experiencing slightly higher rates of
growth. Under Republican administrations income growth
rates were smaller and tapered lower moving down the
income scale.
These graphs poke gaping holes in the Republican Party’s narrative, highlight
Democratic administrations’ success in guiding the economy and lay the groundwork for
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developing a robust Democratic narrative. Addressing the inequitable income distribution since
1979 through some form of democratic capitalism is required.
There is ample evidence, as determined in
numerous surveys of public opinion, that a majority of
Americans favor policies at odds with the Republican
policies and more in step with Democrats. The first
graph reveals the actual distribution of wealth in the
top bar. The goal of democratic capitalism is to move
wealth distribution over time in the direction of the
middle bar to where Americans think it is.
The second graph indicates when Americans are
asked about increasing, maintaining or decreasing
funding for specific federal programs they favor
increasing and maintaining funding for most programs
by solid majorities. What American does not have at
least one area of federal spending she or he would cut
when a general but useless question like “Do you
support cutting federal spending?” is asked.
The bottom graph depicts public opinion
responses to specific gun measures. That gun measures
enjoying broad public support among Democrats,
Republicans and Independents go nowhere in
Washington shows just how the influence of special
interests and lobbyists shape public policy at odds with
the will of the American people. A political system
designed to reflect the will of the people has been highjacked by special interests, corporations and legions of
lobbyists doing their bidding.
In light of the nation’s poorly functioning economic
system and faltering democracy, a plan for growing the
economy and sharing prosperity is proposed. This plan can
provide an evidence-based narrative to guide political debate
in a more productive direction. The report outlines how a
combination of democratic capitalism and political reform
with populist elements could be employed to repair the
nation’s economic system and rejuvenate its democracy to
benefit “we the people” instead of rolling over and serving
those of wealth and catering to corporate interests.
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Seizing the Political Narrative and Developing a Plan for
Economic Growth and Shared Prosperity
This paper attempts to address four trends bedeviling the United States: 1) an
economy struggling to create higher paying jobs and reach some acceptable level of full
employment; 2) an economy which has in the last three and a half decades distributed income
and wealth in an increasingly inequitable fashion and at odds with a more equitable
distribution of income compatible with a vibrant democracy serving the will of the people; 3)
a political system in which the power and influence of wealthy individuals, corporations and
their legions of lawyers and lobbyists shape public policy more than the will of the people;
and 4) the political system’s inability to form a thoughtful, coherent narrative and devise
policies and implement reforms to reverse these troubling trends.
Results in recent presidential elections, hundreds of public opinion polls indicating
Americans support Democratic policies over Republican policies, often by large margins, and
the rightward drift and disarray in Republican ranks provide an opportunity for the Democratic
Party to develop a broad and coherent narrative garnering wide public support. The Republican
candidate for president has won the popular vote in only one of the last six presidential
elections. A compelling narrative is needed to inform and address many important issues and
problems facing the nation. The fact that an increasingly discredited Republican narrative and
bogus talking points stemming from the narrative continue to drive and dominate media
coverage and political debate indicate Democrats have work to do if they are to capitalize on
this opportunity. The fire-breathing Republican dragon dominating and inhibiting productive
debate and political action must be slain before serious attention to the nation’s challenges is
possible.
GRAPHS ARE IMPORTANT—a picture is worth a thousand words is a truism the
Democratic Party would do well to embrace. Evocative and easy to read graphs for the
average citizen like the ones presented in this paper serve double duty. They refute the truth
and accuracy of talking points used by Republicans in advancing their narrative and ultimately
the obstructionist course they have been pursuing. The graphs do support the truth and
accuracy of Democratic thinking points and because they are accurate enhance and support
the Democratic narrative. These graphs, the evidence they contain and the logical conclusions
they point to will put Republicans and much of the media that merely repeat Republican talking
points on the defensive.
A Plan for Growing the Economy and Sharing Prosperity must address the following four
mega issues:
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1. The current functioning of the national economy is not creating enough high
paying jobs and has contributed to growing income inequality over the last four
decades;
2. A form of democratic capitalism is needed to improve the functioning of the
national economy and distribute income in a more equitable (democratic) fashion
as was the case from the mid-1940s through the late 1970s;
3. The deteriorating health of the nation’s political system is caused in part by a
flawed economic system producing results inconsistent with maintaining a vibrant
democracy which should bend to the will and interest of the majority and not to
narrow special interests of the wealthy and corporations on so many issues.
4. The nation’s flawed political system resembles a food fight more than a vibrant
democracy wrestling with old issues and new challenges; it is proving it is not up
the task. The best conservative and progressive aspects of successful populist
movements and political reform movements of the past will need to be enlisted to
bring both our political and economic systems up to the task at hand.
Consideration of these four overriding issues and other issues and problems will be
interwoven throughout the paper as popular Republican talking points driving the party’s
narrative and much of the national debate are subjected to consideration of evidence. Graphs
displaying evidence relevant to each talking point are provided and discussion of the
implications provided.
Republican talking point driving narrative: A Democratic-led federal government will
bring economic ruin to the nation whereas Republicans, if given the reins of power, with a deft
hand on the tiller, will provide business-friendly government more conducive to job growth.
Republicans seldom provide evidence to substantiate their claims, only rhetoric. More
surprising is Democrats seldom provide evidence refuting Republican claims, even though
evidence to do so is readily available and can be conveyed easily and effectively in graphs.
What data would be helpful in testing this particular Republican talking point? The amount of
job growth during past presidential administrations would appear to be a reasonable measure
to assess what level of success was achieved under any administration.
Figure 1: Average annual job growth during presidential
administrations from Harry Truman through George W.
Bush
Graph compiled from data provided in table posted on Wall Street
Journal blog.
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Figure 1 does supply strong evidence that refutes rather than bolsters the Republican
case. The degree to which Democratic administrations outperform Republican
administrations in job creation since the late 1940s is quite astonishing. Democratic
administrations averaged about 2 million jobs created each year while Republican
administrations averaged about one million jobs per year. Nixon and Reagan were the top
Republican administrations in job creation but both lagged behind the Johnson, Carter and
Clinton administrations. More jobs per year were added under Carter than under Reagan; this
hardly comports with the walk-on-water success ascribed by Republicans to Reagan’s
presidency. This historical record of job creation since World War II, almost never referenced
by the media or Democrats for that matter, indicates Democrats have a stronger claim for
effective and steady stewardship of the economy. If Republicans are the business-friendly
party, it has only yielded half the returns of Democrats in terms of job creation.
There are those who say government ought to run like a business. If one is really
serious about this, just what would be a fair yearly salary for the president of the
country, for a governor of a state? Compared to what top CEOs make per year,
the president might have to be given two large trucks, a work crew of twenty-five
and a day loading gold from Fort Knox for compensation each year.
When yearly job increases or losses are considered, according to Bureau of Labor
Statistics from Truman through Obama, there were only two years with Democrats in the White
House compared to twelve years with Republicans in the White House experiencing job losses.
The four highest years of job gains during this period were when Democrats controlled the
White House. Years of job loss and gain once again indicate more desirable results occur when
Democrats occupy the White House.
Another good measure of effectiveness of stewardship over the economy is income
growth rates for households during Republican and Democratic administrations.
Republican talking point driving narrative: A Democratic-led federal government will
bring economic ruin to the nation whereas Republicans, if given the reins of power, with a deft
hand on the tiller, will spur greater economic growth leading to higher incomes for all
Americans. This is the “trickle down” growth path ballyhooed by Republicans.
Does percentage increase in household income by income group indicate any
relationship with what political party occupies the White House? Figure 2 repudiates any
Republican claim of superiority in promoting economic growth and once again another
Republican talking point bites the dust. In fact, for every income quintile and even for the top
5 percent income gains were greater on average during Democratic administrations. The data
also reveal all income categories experienced comparable increases under Democratic
administrations while higher income groups achieved successively higher income gains when
compared to lower income groups under Republicans. These trends are consistent with the
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political philosophies and public policies advocated by the respective parties. Republican
policies have traditionally favored the wealthy and corporate interests while Democrats have
devoted more attention to the poor and middle class in crafting policy. Reaganomics and
twelve years of Republican rule no doubt contributed to the more inequitable distribution of
income beginning around 1980 when Reagan assumed office (see Figure 3a).
Figure 2: Income gains by income
quintiles during Democratic and
Republican administrations
Source: Based on data compiled by Larry Bartels.
“Politics has become so
expensive that it takes a
lot of money even to be
defeated.” (Will Rogers)
There are certainly other factors contributing to the trends depicted in the Figures 1 &
2, but Republicans would ignore them if the data supported their talking points. The law of
averages would suggest other factors would likely even out over time and not consistently lean
in the favor or disfavor of one political party. That Democrats have not used evidence like this
to put Republicans on the defensive and advance their agenda and narrative speaks to
shortcomings in Democratic messaging and explains why Republicans are able to dominate the
national dialogue more than the validity of their talking points and narrative merits.
Republican talking point driving narrative: When Democrats talk about the need to
consider increasing taxes on wealthier households and corporations and/or addressing the
growing disparity between lower, middle and upper income groups, it shows Democrats are
antibusiness, want to punish the rich and are promoting class warfare.
President Reagan was fond of saying and “trickle down” Reaganomics was based on “all
boats rising with the tide” when the economy grows. The trend in income gains among income
quintiles in the U.S. for over thirty years from 1947-1979 as depicted in Figure 3a suggests
Reagan may have been correct because all income groups experienced impressive gains with
lower income groups achieving slightly higher percentage gains. The economy was delivering
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the more equitable distribution of income one would anticipate from democratic capitalism and
constructive governmental programs.
Figure 3a: Average annual income gains
by income quintiles for 1947-1979 and
1979-2004
Figure 3b: Average loss/gain per
household per year compared to if 19481979 income gains had been maintained
What is the difference between
landfills and right wing media?
Landfills bury garbage while
the right wing media digs it up
and passes it off as news.
However, for twenty-five years from 1979-2004 it is clear a seismic shift in the
distribution of income gains among various income groups occurred. Higher average annual
gains in this latter period were channeled to the upper income groups and especially to the
top one percent while lower and middle income quintiles lagged well behind and experienced
very meager income gains. In the last three decades the economy grew but prosperity has not
been shared equitably among income groups. Available evidence indicates this inequitable
trend has continued to the present day. As Figure 3b shows the average top 1 percent of
households enjoyed gains approaching $600,000 more per year while the average bottom 20
percent household lost about $5,600 per year compared to what would have happened had
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the 1947-1979 trend in income gains continued. Democratic capitalism has clearly derailed
and most Americans have suffered as a consequence. Republicans continue to applaud the
derailment while Democrats have been ineffective in documenting the derailment and
devising a narrative and policies to put the economic engine back on track.
By the simplicity often found in Republican reasoning, can we conclude that income
gains of most Americans had been enjoying from 1947-1979 started and/or continued on a
unhappy downward path once the Reagan administration took office? Rather than all boats
rising with the tide, only yachts and luxury liners have risen with the tide while most
Americans have found themselves up a creek without a paddle or stranded on the beach
searching for driftwood to build rafts. For millions of Americans treading water in rough
economic seas, Republican policies reveal the party’s intent is not to throw those struggling in
the water a lifesaver from the yachts, luxury liners or rescue ships but instead to throw them
an anchor in the form of deep cuts in programs providing the wide array of public goods and
services (education, housing, food stamps, mass transit, health care, etc.) which helped build
a broad middle class and assisted lower income groups to move out of poverty and up the
economic ladder.
Figures 4 shows how the top one percent and the top quintile increased their incomes
281 percent and 95 percent respectively while the middle and bottom quintiles eked out gains
of 25 percent and 16 percent since 1979.
Figure 4: Diversion in percentage
income gains by income group
since 1979
A viewer called Fox News to
complain that there was no
sound. The voice on the end
of the line said “don’t worry
we haven’t got to the fair and
balanced yet”.
If the class warfare charge has any merit, it is not as Republicans portray it but instead is
how successful the rich and corporate power have been in extracting a much higher percentage
of the wealth our economy generates out of the hides of most other Americans in middle and
lower classes since 1979. Vilifying unions and fighting increases in the minimum wage are
clearly not designed to assist workers in getting a larger share of whatever economic growth
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occurs in the economy. Instead Republicans are complicit in and even celebrate this shift of
wealth that disadvantages the vast majority of our nation’s citizens. The marketing of George
W. Bush as a “compassionate conservative” was tacit admission that many policies advocated
by Republicans do not treat the least among us and now even the majority of us very kindly
nor exhibit the Christian values Republicans regularly profess but which are impossible to
ferret out in the policies they advocate.
No doubt many forces and factors have contributed to the dramatic shift in income
distribution starting in the later 70s and early 80s. It should be obvious that a free market as
envisioned by Adam Smith in which all producers and consumers are small and therefore
must merely respond to the price set by the free hand of the market would not have led to
such a mal-distribution of income, especially in a country with a healthy democracy. One
cannot discount the vital role played by political malfeasance in contributing to this trend. It is
after all the role of government to intervene when it is clear the rules by which markets are
supposed to operate are so easily and broadly violated and oligopolies in the form of huge
corporations and wealthy plutocrats are served by growing legions of accountants, teams of
lawyers, swarms of lobbyists and politicians in the pocket of rich and corporate interests
pressing their case.
That too many politicians are actually or suspected to be in bed with moneyed and
corporate interests inspires little faith in the nation’s ability to address this very important
problem. Add to this the Supreme Court weighing in vigorously to further advance the interests
of corporations and wealthy and against the interests of those without money or power has
only worsened the situation.
Anyone providing evidence and analysis regarding income distribution is quickly cast
aside as engaging in class warfare by Republicans. Well, it is obvious class warfare has been
going on for some time and wealthy individuals and corporations have been decisively
winning this warfare at the expense of the middle and lower classes over the last four
decades. Where have Republicans been? On the sidelines cheering on the rich and powerful
and helping them run up the score. Is this the party of Lincoln? Is this the party of Christian
values? The party’s actions say not. It is the party catering to every wish and whim of the rich
and ever protecting and advancing corporate power.
People and a political party who express absolutely no concern about the growing
disparity in income trends in Figures 3 & 4 are whistling pass the graveyard. More sober
thinking and reflection will recognize these are troubling signs if we collectively value a vibrant
economy which works for the vast majority of our citizens and if our democracy is to respect
the will of the majority and advance the health, safety and general welfare of the citizenry.
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Achievements of which Americans are proud—the development of a broad middle class,
children being likely to exceed the living standards of their parents, ample opportunity and
assistance to allow people to move up the economic ladder, affordable public education
allowing students to attend college to pursue more rewarding careers without accruing
mountains of debt—are now in doubt. There is evidence the younger generations may not
achieve the levels of job security and economic success of their parents.
A nation desperately needing to pull together to address its challenges seems to use
every issue, whether important or trivial, as another opportunity to launch partisan attacks,
disagree and be as disagreeable as possible in the process. It is said politics is the art of
compromise yet compromise has become a four-letter word for one of our political parties.
Politicians who effectively worked with politicians in the other party to pass legislation and
seemed to put the country’s interest over their prospects in the next election used to be called
statesmen. Now they are called RINOs (Republicans in Name Only) and much worse.
Regrettable Supreme Court money-is-speech and unlimited and undisclosed campaign
contribution decisions have unleashed billions upon billions of dollars into our political system.
If these dollars were producing more thoughtful political debate leading to the enactment of
better laws and policies and promoting overall better government or at least doing no harm,
there would be little cause for concern. When another older yet disastrous Supreme Court
decision ruled corporations are people is considered, one can appreciate the judicial system’s
contributions to the mess in which we find our political system and why public trust of the
court is at an all-time low. It is doubtful a very high percentage of Americans would conclude
our political system has improved with avalanches of cash coming from unidentified sources
filling political coffers. Large donors are increasingly the primary funding source for political
parties, advocacy lobbying groups and politicians to promote and enact legislation serving their
interests. Our political and legal systems, now with a nod from our highest court, have moved
dangerously close to making bribery legal.
There were apparently times when the
interests and fortunes of Wall Street and Main
Street were served by economic growth. But
once again as Figure 5 indicates something
changed around 1980 and after Reagan the
economy performed nicely for Wall Street but
left Main Street lagging behind. Compensation
in the financial sector of the economy has risen
dramatically while other sectors lag behind.
Much evidence points to the conclusion
our country is beyond the point where a good
policy here and a good law there will be enough Figure 5: The Great Divergence in the Fate of Wall
Street and Main Street
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to reverse the present course which is warping the nation’s economy and undermining its
democracy. The nation needs to develop an American-grown form of democratic capitalism.
“Democratic capitalism, also known as capitalist democracy, is a political, economic,
and social system and ideology based on a tripartite arrangement of a market-based
economy based predominantly on a democratic policy, economic incentives through free
markets, fiscal responsibility and a liberal moral-cultural system which encourages pluralism.
This economic system supports a capitalist free market economy subject to control by a
democratic political system that is supported by the majority. It stands in contrast to
authoritarian capitalism by limiting the influence of special interest groups, including
corporate lobbyists, on politics.”(Wikipedia)
The skewed distribution of income gains in favor of the wealthy, especially since 1979,
would indicate authoritarian capitalism or feudalistic capitalism has been operating because the
“influence of special interest groups, including corporate lobbyists, on politics” has not been
limited but is actually growing and our “capitalist free market system” has not been “subject to
control by a democratic political system that is supported by a majority”.
The Importance of Public Goods and Services
Citizens in the United States when compared to citizens in other highly developed
countries seem to fail to distinguish very important differences between private goods and
services which markets do a fine job in allocating and public goods and services provided by
government which are paid for fully or in part by taxes and user fees. Whereas private goods
and services are available solely or primarily for the person or household purchasing them
public goods and services are available to all individuals. Most public goods and services like
education, police and fire protection, parks, health care, roads, etc. are so important they
should be available to all citizens and not based solely on ability to pay.
It is a simple truth that taxes collected by federal, state and local governments are what
fully or partially pay for high quality public goods and services. Many public services like mass
transportation, national, state and local parks and health care require some out-of-pocket costs
from users to cover some of the costs not borne by taxpayers. The U.S. has been employing
non-market methods for some time to provide the array of public goods modern societies
require (road building and maintenance, river dredging, public education, Social Security,
Medicare, mass transit and others). To expect the free market to provide public goods and
services to all requiring them is a fool’s errand. Yes, certain public services like garbage hauling
can be contracted out to private firms but it will still be tax revenues paying for the service as if
the garbage collection was conducted by public employees. The notion pushed by those with a
vendetta against public employees and unions that contracting out services to private firms will
save taxpayers lots of money is an allusion. Private contractors also must build in a profit for
their services.
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Because of the animus against public employees, their unions and many government
programs, Republicans often make silly claims: government and the public sector do not
create jobs; the private sector creates jobs. Providing public goods and services should not
employ government workers but instead contract out for these services with private
companies.
Since contracting out for public services with private firms requires paying for these
services from government revenues, paying a worker in the public sector or private sector to
provide a service appears to be a distinction without a difference from a taxpayer’s viewpoint.
Virtually, all defense-contract related jobs are paid for by the government and are in fact jobs
created by government and not private spending. Glorifying private over public sector jobs and
demeaning public sector employees, as some Republicans and their media counterparts are
fond of doing, is part of the contempt they have for government when its programs deal with
any issue with which they disagree.
“I am\not a member of any organized political party. I am a Democrat.” (Will Rogers)
The claim government does not create jobs is shown to be spurious for the country and
every state within (Figure 6). Public-sector and federal-contract jobs as a percentage of total
jobs ranges from a low 14.3 percent in Rhode Island to a high of 31.9 percent in New Mexico. In
twenty-three states, a majority being red states controlled by Republicans, government jobs
comprise 20 percent or more of total jobs. It would appear red states count of federal largesse
more than blue states.
Figure 6: Public-Sector and Federal-Contract Jobs as a Percentage of Total Jobs
It is breathtaking how untrue and outright silly statements found in Republican talking
points are. What is more alarming is how the media willingly circulates these untrue and silly
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talking points without noting they are untrue, easily disproven by evidence and indeed silly.
That many Republicans saying these silly things are government employees themselves speaks
of an amazing lack of self-awareness. The same kind of self-awareness displayed by some in the
Tea Party who brimming with indignation warned they did not want the government meddling
with their Medicare or Social Security. They hate socialism but insist on continuing to benefit
from it.
There are growing indications a majority of the American public sees through
Republican smoke screens, is prepared to embrace a form of democratic capitalism and will
support politicians and political parties who chart and advocate such a course of action. Quite
naturally democratic capitalism will strike a populist chord in citizens of conservative,
moderate and liberal leanings. The dysfunctional and increasingly undemocratic outcomes in
our political system should spark a reform movement for better, cleaner and truly more
representative government.
In looking at the actual distribution of wealth in Figure 7, it is difficult to see how the
U.S. can remain a vibrant democracy responsive to the will of the people or have a healthy
economic system allowing all boats to rise. To say this distribution has come about through free
market forces is to reveal ignorance about what free means and what markets are. We live in a
political economy. Wikipedia definitions: “Political economy was the original term used for
studying production, buying, and selling, and their relations with law, custom, and government,
as well as with the distribution of national income and wealth.”
Figure 7: Actual, suspected
and preferred distribution of
wealth in U.S. based on
responses of over 5,000
Americans
The inequitable distribution of household income gains revealed in Figure 3a since 1979
has contributed to the highly skewed actual distribution of wealth (top bar in Figure 7) with the
top 20 percent quintile controlling well over 80 percent of the nation’s wealth with the lowest
20 percent’s wealth not even visually discernable on the graph. The Americans surveyed
guessed the current distribution of wealth was the middle bar on the graph. When asked what
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they thought it should be those surveyed expressed they would like a more egalitarian
distribution of wealth, the lowest bar in the figure.
The goal of democratic capitalism in the U.S. is simply put: to move the current
inequitable distribution of wealth toward what Americans thought it was; the middle bar in
Figure 7. With such a goal in mind policies most likely to move the nation in that direction
should be given priority and politicians and political parties should be evaluated by concrete
proposals and policies they advance and ultimately enact that move toward the goal. Over
time it will be possible to determine what progress is being achieved. In time income gains by
income groups should move away from the 1979-present pattern and toward the more
equitable distribution in the 1947-1979 shared prosperity period as revealed in Figure 3a.
Republican talking point driving narrative: Republicans frequently state Americans are
over taxed. They also claim federal taxes and spending are at an all-time high. Quite naturally
they conclude electing a Republican president over a Democrat will halt and reverse these
trends and right the ship of state.
Left: Figure 8a: Effective overall tax rate comparing U.S. with other
developed OECD countries
Right: Figure 8b: Comparison of total tax revenue as percentage of
GDP from various sources for the U.S. and average for OECD
countries
You are probably a Republican if you told
your child Oscar the Grouch is a “taker” who
because he lacks ambition lives on the street
in a trash can and should be grateful to a
“maker” that his can has a lid.
Any international comparison of overall tax rates quickly shows by any objective
measure Americans are not overtaxed and in fact are undertaxed. In comparing the U.S. with
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other democracies and highly developed Organization of Economic Cooperation and
Development (OECD) countries, it is obvious total taxes in the U.S. as a percentage of Gross
Domestic Product (GDP) are lower. Whereas about 25 percent of GDP in the U.S. represents
the total tax share, the average for OECD countries is about 35 percent (Figure 8a). Figure 8b
compares the sources of taxes for the U.S. with the average for other OECD countries. The
major difference is the larger role played first by a higher Value Added Tax (VAT) in European
countries on goods and services compared to the lower sales tax on goods and services in the
U.S. and second the higher payroll tax in Europe. In the case of the VAT, European politicians
were smart to make sure it is included in the advertised price for an item and not added on in
the purchase of the item as in the U.S.
Our nation’s political dialogue fails to make a clear distinction between public goods and
services and those provided by the market and the vital role government has always played and
increasingly plays in any successful modern society in providing high quality public goods and
services. The higher taxes paid by citizens in other developed countries explains more than any
other single factor why infrastructure investments and a whole range of public goods and
services dependent in whole or in part on tax revenues to finance them are of higher quality in
a number of OECD countries than in the U.S. Public investment in state-of-the-art fast trains,
modern mass transit systems, public education and health care systems makes these services
available to virtually every citizen in most other developed nations and explains why many have
caught and passed the U.S. in the quality and availability of these public goods.
The top ranking once enjoyed by the U.S. has been slipping in recent decades on a long
list of quality of life measures ranging from infant mortality rates to test scores in math and
science to teacher pay to life expectancy at birth to paid vacation and sick days to
unemployment compensation. The countries catching the U.S. and passing it on these
measures all pay a higher percentage of GDP in total taxes. If low taxes work the way
Republicans claim, why have these countries caught and in some cases passed the U.S.?
Americans and their political representatives can continue to keep overall taxes low but
the result will be the level of “health, safety and welfare of the population” provided by high
quality public goods and services, which is after all the responsibility of government and not
corporations or markets, will stagnate or decline.
Republican talking point driving narrative: “Tax and spend” Democrats will drive up
yearly deficits and the national debt while Republicans will rein in spending, reduce yearly
deficits and debt and be more fiscally responsible.
Figure 9 provides evidence in sharp contradiction to this Republican talking point. Using
percentage increase in the national debt is more reliable for comparison because due to
inflation $2.65 million in 2010 is required to purchase what $1 million did in 1980. Don’t be
surprised if you see this graph appearing less favorable for Democratic administrations; using
deficits not considering inflation still makes the Republican case look dreary but less so. Clearly,
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
Republicans have been the growers of the national debt in recent decades, although the
percentage for Obama is only for a little over half of his first term in office. Reagan, the walkon-water president by Republican lights, allowed the national debt to expand in unprecedented
fashion while he occupied the White House.
Even for those who think “tax and spend” applies to Democrats, it is a more fiscally
responsible than the Republican less fiscally credible “borrow and spend” approach which leads
to higher yearly deficits requiring more borrowing and a more rapidly increasing national debt.
Yet, Republicans felt no sense of hypocrisy when they harped about how under Obama we
were borrowing so much from foreign countries to finance federal spending. It was under Bush
II with virtually unanimous support from Republicans in Congress that two unfunded wars were
started, unfunded Medicare increases passed and a large reduction in tax rates approved
Figure 9: Percentage increase in the national debt
from Reagan to Obama
"Our party…..has been taken over
by a sideshow. The party of
Reagan`s big tent has been
reduced by some to a dunce cap."
(Republican mayor in Virginia, 2013)
without spending offsets which sparked increased
borrowing from abroad and resulted in higher
deficits and debt (Figure 10).
We are starting to see a trend. When real
world data and evidence are cited so many
Republican talking points crumble. Democrats are
doing a poor job in underscoring this point to put
Republicans squarely on the defensive and forcing
the media to deal with evidence. The national
media one might expect would be guided by factbased criteria in reporting and commenting on
stories, in the case of the Republican narrative fairy
tales, and would feel some obligation to correct the Figure 10: Factors contributing to yearly deficits
record. Reporting talking points is fine but failing to and the national debt
point out the ample evidence questioning their validity is dereliction of duty. Much of the
media will continue in this dereliction of duty if Democrats armed with their graphs and real
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
world evidence do not relentlessly hold the media’s feet to the fire. If this data supported the
Republican claims, the feet of the main stream media would be smoldering. Republicans know
how to push a message, even a flawed one.
The trend for yearly deficits in Figure 11a depicts them below the horizontal line as a
percentage of GDP. Until the economic crisis triggered in late 2008, the period of highest four
years of deficits occurred under Reagan while Clinton achieved surpluses which carried into the
Figure 11a above: Deficits and surpluses by year as
percentage of GDP, 1946-2012
Figure 11b right: Dow Jones Industrial Average from
2000-2013.
first term of George W. Bush. Deficits under Obama as a percentage of GDP rose to their
highest around 10 percent of GDP in 2009 and although still high have been coming down and
approaching levels matching those established under Reagan as a percentage of GDP. As Figure
11b indicates the largest numerical drop in history of the Dow Jones Industrial Average and the
largest percent drop in the DOW average since the Stock Market Crash in 1929 started in late
2008 as the campaign which led to the election of Obama’s first term was wrapping up. In a
little more than a year the DOW average fell from over 14,000 to less than 7,000 points. The
wrenching and multiple shocks to the nation’s economy and most of the world’s economies
dramatically reduced tax revenues while increasing government spending to deal with
mounting problems like rising unemployment, continuing to fight two wars and maintaining
larger tax cuts enacted under Bush II for which supportive Republican legislators never
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
bothered to provide funding or the spending offsets they insist Obama must adopt. No postWorld War II president faced the series of political and economic challenges Obama inherited
upon assuming office.
Note, the smaller but significant drop in the DOW average under Bush II from 2001-2003
led to a spike in deficits in those years. During the Clinton administration deficits as a percent of
GDP came down and finally in the late 1990s and first two years under Bush II modest surpluses
had been achieved. By pushing large tax cuts even after engaging in two wars the Bush II
administration pushed “borrow and spend” to new and reckless heights. Republican chutzpah
surfaces whenever they accuse Obama of his assault on the nation’s financial health when
their fingerprints are all over the weapon. A majority of American voters saw through this
ruse and returned Obama to the White House in 2012. A slightly more reasonable and less
tea intoxicated Republican Party might have won the 2012 election.
Given the importance Republicans say they place on reducing yearly deficits and the
national debt and how critical they are of Democrats and particularly Obama for not balancing
the budget as soon as possible, Figure 12 shows debt of a percentage of GDP was coming down
following World War II until the Reagan and Bush I administrations when the national debt rose
from about 30 percent of GDP to over 60 percent, an increase of 100 percent. Debt as a
percent of GDP came down under Clinton and spiked up again under Bush II to about 80
percent of GDP. The green line on the graph indicates what would have happened if Reagan,
Bush I and Bush II had balanced their budgets and produced no yearly deficits. The national
debt would have fallen to zero early in the first term of Bush II. Owing to the Great Recession,
the national debt would have still gone up under Obama but would be 15-25 percent rather
than 100 percent of GDP.
Figure 12: Actual increase in national
debt and how national debt would
have fallen if Reagan and the two
Bushes had balanced their budgets
and Democrats did what they did.
Republican policy adheres to
the “golden rule”: the rich
deserve the gold and they also
deserve to rule.
Given the track record of recent Republican administrations presiding over the only
sustained periods of increasing national debt as percent of GDP since World War II,
Republicans are in no position to lecture anyone about deficits, debt and balanced budgets.
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The record is clear Republican administrations prefer the less financially sound “borrow and
spend” management approach to government when they are in charge in Washington rather
than the more financially responsible “tax and spend” approach they claim, often incorrectly,
Democrats pursue. The net result is both yearly deficits and the national debt have increased
more under Republican administrations and another talking point is blown apart by the strong
wind of evidence and a clear historical record.
When Republicans no longer control the White House, they return to being deficit and
debt hawks and their rhetoric has risen to the insane level of expecting Obama or any president
who happens to be a Democrat to balance the budget in the midst of a deep recession. Raising
taxes and cutting spending enough to balance the federal budget in a recession? They have to
be kidding. Just about every living economist and even most dead ones would warn: there is
probably no quicker way to plunge the economy into a depression. Declining public sector
employment, a present-day cause celeb of Republicans, has in fact retarded the strength and
speed of economic recovery since 2008.
Republican talking point driving narrative: Despite winning two national elections, the
policies advocated and proposed by Obama are dangerous and are not supported by the
American people. Taxes and government spending are at an all-time high, our nation cannot
afford existing programs let alone new ones and most Americans want to cut existing
government programs to curtail spending, reduce taxes and balance the budget.
The problems with public opinion surveys are the questions asked. One example of a
poor and useless question would be: do you think there are current federal programs which
should have their funding cut? It would be hard to imagine an American citizen with a pulse
who does not think at least one or two federal programs should be cut. We all do have our axes
to grind. Since it is actually a fill in the blank question, a yes or no tells us virtually nothing about
which program(s) respondents favor cutting or what percentage of respondents favor cutting a
specific program. Yet, even a useless question serves some political purposes for those who
want to report 99.9 percent of Americans favor cutting federal programs; hardly very
illuminating.
Another useless survey question is: do you think taxes should be increased? This is
coming close to asking: Are you still beating your wife? It is hard to imagine many rational
people saying yes taxes should be increased absent some reason for doing so. Better questions
would be: Do you favor raising taxes to insure current funding levels of social security are
maintained? Would you support increasing taxes supporting higher education so that students
can reduce the high levels of debt many are now facing upon graduation? Do you favor raising
taxes to repair deteriorating highways, bridges and levees for flood protection and to invest in
new high priority infrastructure projects? If necessary, would you favor cuts in defense funding
before cuts in education? To reduce yearly deficits and the national debt would you favor
cutting government programs assisting the poor and middle class over an increase in taxes on
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
the wealthy and corporations to maintain these programs? Would you support the federal
government instituting a policy that for firms and industries securing government contracts
they show CEO yearly salaries and other compensation do not exceed more than 150 times the
average wage of their workforce?
A Pew Research Center Poll elicited
more useful responses by asking a better
question: “Thinking about the federal budget,
if you were making up the budget for the
federal government this year, would you
increase spending, decrease spending or keep
the same spending for?” Pew identified
eighteen policy areas or programs for
respondents to consider.
Figure 13 reveals that those favoring
increases in spending or maintaining the same
spending comprised 68 percent or more of all
responses for seventeen of eighteen policy
areas. The appetite for federal spending cuts
when very general and not specific questions
are asked diminishes when specific programs
and policy areas are identified and
respondents are given several alternative
answers. Only two areas, military defense and
aid to world’s needy had 30 percent or more of
Figure 13: Percent of respondents favoring increases,
decreases or staying the same in federal funding for
respondents favoring decreases in spending
eighteen policy areas
and only two others, unemployment aid and
environmental protection had 25-29 percent favoring decreases. From this survey and other
surveys it appears, when consulted, large percentages of Americans are satisfied with federal
funding and for sixteen of the eighteen policy areas are more inclined to favor increases over
decreases. Since a majority of Americans seem satisfied with either increasing or maintaining
funding levels, raising taxes to pay for these funding levels would be a more rational decision
than cutting programs.
Republican claims that taxes and government spending have risen to an all-time high
under Obama are demonstrably false if any reasonable measure to gauge spending over time
is considered.
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
Figure 14 shows how tax rates have actually come down since 1979, although rates have
come down most dramatically for the top 1 percent of households and even more for the
richest 400 households in the nation. The average tax rate has also come down but in a
moderate fashion.
Figure 15 provides evidence showing government employment has grown much slower
under Obama than under Reagan, Bush I and Bush II. As this and some other graphs in this
Figure 14: Average tax rates, 1979-2007
Figure 15: Change in government employment for select administrations
paper reveal, harsh critiques of Obama’s presidency by
Republicans, if taken seriously, would lead one to
conclude the administrations of Reagan, Bush I and
Bush II were unmitigated disasters. Many of the
statistics showing Obama not performing as well as
previous Democratic administrations as far as deficits
and debt are concerned are explained by the huge and
unprecedented economic mess he inherited from the
previous Republican administration on assuming office.
Figure 16 shows the national deficits have been
declining as a percentage of GDP under Obama.
Assembling evidence showing the inaccuracies of some Figure 16: Decline in national debt as percent of GDP
There may be a few men in their sixties and seventies who will tell you they didn’t
think Sophia Loren was very attractive. The best way to dispel this nonsense is to
show a picture of Sophia in her prime and even well beyond her prime to any
doubters. The best way to dispel much of the nonsense Republicans state as gospel
is to show a few graphs. The curves on many graphs may not be as interesting as
Sophia’s but they tell a story at odds with the bogus claims and bloviated rhetoric
emanating from Republicans and all too frequently repeated uncritically by a
compliant media.
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
of the Republican claims, talking points and narrative is at times the political equivalent of
shooting fish in a barrel.
Figure 17 in tabular form provides detailed statistics from 1979 to 2009 for household
income quintiles and upper income percentiles. The top 1% paid higher federal taxes for the
years a Democrat was in the White House with tax rates every year ranging from 32.4 to 35.2%;
under Republican administrations the top 1% tax rates ranged from 24.6 to 32.1% with
fourteen of twenty years being 30% or less.
Figure 17: Average Federal Tax Rates for All Households by Income Quintile, 1979-2009
Year
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Low Q
2nd Q
3rd Q
4th Q
Total Average Federal Tax Rate
7.5
14.5
18.9
21.5
7.4
14.1
18.9
21.8
7.9
14.7
19.2
22.3
7.7
13.5
17.9
20.6
8.4
13.4
17.4
20.2
9.4
14.3
17.8
20.3
9.2
14.5
18.0
20.4
9.1
14.3
17.9
20.5
8.2
13.5
17.4
20.2
7.9
13.8
17.8
20.6
7.6
13.5
17.7
20.6
8.4
14.1
17.7
20.6
8.1
13.5
17.3
20.5
8.0
12.9
17.1
20.2
8.0
12.7
17.1
20.3
6.8
12.5
17.1
20.5
6.7
12.7
17.1
20.6
6.4
12.6
17.0
20.5
6.8
12.8
17.3
20.7
6.6
12.3
16.6
20.6
6.5
12.6
16.6
20.6
6.8
12.4
16.5
20.6
5.7
10.9
15.0
18.9
5.5
10.3
14.4
18.3
5.3
9.4
13.6
17.4
5.1
9.6
13.7
17.4
5.4
9.9
13.8
17.6
5.7
9.9
13.9
17.7
5.1
10.3
14.0
17.5
1.5
7.3
11.6
15.6
1.0
6.8
11.1
15.1
High Q
27.1
26.9
26.6
24.2
23.6
23.8
23.8
23.6
25.6
25.4
25.1
24.9
25.1
25.4
26.5
27.1
27.5
27.8
27.8
27.4
27.7
27.7
26.5
25.8
24.7
24.9
25.4
25.4
24.7
23.6
23.2
All Q
22.0
22.0
22.2
20.5
20.2
20.6
20.7
20.6
21.3
21.5
21.2
21.2
21.1
21.1
21.6
21.9
22.1
22.3
22.6
22.3
22.6
22.7
21.0
20.3
19.4
19.6
20.1
20.3
19.9
18.0
17.4
81st-90th 91st-95th 96th-99th Top 1 %
Total Average Federal Tax Rate
23.5
25.1
27.1
35.1
23.9
25.5
27.4
33.1
24.5
25.8
27.3
30.4
22.6
23.7
24.6
26.7
22.0
22.9
23.6
26.7
22.4
23.0
23.6
27.0
22.5
23.4
23.7
26.1
22.7
23.4
23.6
24.6
22.8
24.3
25.9
30.3
23.1
24.2
25.5
29.0
22.9
24.1
25.3
28.3
22.9
24.0
25.2
28.1
22.8
24.2
25.3
29.1
22.6
23.9
25.6
30.0
22.6
24.3
26.3
33.5
23.1
24.7
26.7
34.8
23.1
25.0
27.2
35.3
23.1
25.0
27.4
35.2
23.4
25.2
27.6
34.1
23.3
25.1
27.4
32.6
23.4
25.3
27.9
32.8
23.5
25.3
27.9
32.4
22.3
24.4
26.7
32.1
21.6
23.8
26.1
32.0
20.5
22.7
25.0
30.4
20.5
22.7
25.3
30.1
20.6
22.7
25.8
30.4
20.7
22.8
25.9
30.0
20.6
22.5
25.4
28.3
19.1
21.7
24.7
28.1
18.8
21.1
24.1
28.9
Strong Public Support for Gun Control Legislation
Those claiming the second amendment allows wholesale carrying of guns and who are
opposed to even modest gun restrictions ignore the fact that the amendment deals with
maintaining “well regulated” state militias. In fact well regulated are the second and third
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
words in the twenty-seven word amendment. This implies gun usage outside a militia context
should be well-regulated. With over 65 percent of Americans and a majority of every political
persuasion favoring four of the seven specific gun measures in Figure 18, the fact the
Republicans controlling the House of Representatives will not even allow these measures to
come to a vote is testimony to the broken nature of our political system and its ability to
disregard what a clear majority of Americans desire. That Republicans who are the minority in
the Senate have taken the filibuster to heights in usage and require the minimum of sixty
senators to pass just about anything contributes to inaction and gridlock in Washington. It also
provides mounting evidence of the political system bending to the minority view of the
wealthy, corporations and their lobbyists. It is a shame the thousands upon thousands of
Americans killed and maimed each year in the crossfire of what passes as gun rights and their
grieving families do not have lobbyists working on their behalf.
Figure 18: Level of support for seven gun measures by party identification
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
Strong Public Support for Raising the Minimum Wage
Figure 19 provides one of many polls showing similar results. A majority of Americans
regardless of race, education, household income and political affiliation favor raising the
minimum wage. Even self-identified Republicans favor it and Democrats and Independents
favor it by huge majorities. Raising the
minimum wage would appear to be a slam
dunk.
The Republican Party as represented
in the nation’s capital and many state
capitals is at odds with majority opinions in
America on many key issues and time and
again goes out of its way to ignore and
demean large segments of the electorate. A
party that professes deep Judeo/Christian
values hardly seems guided by them as it
regularly supports policies and expresses
attitudes not recognizable by or reflecting
values any of the world’s great religions.
A St. Louis Post Dispatch editorial
pulled no punches in stating: “Today we have
the spectacle of smart, patriotic men and
women putting their brains and integrity on
ice to please a party dominated by antiintellectual social Darwinists and the Figure 19: Public support for minimum wage increase by
plutocrats who finance and mislead them.” race, education, household income and political affiliation
(St. Louis Post Dispatch editorial, June 26, 2011) A Republican mayor in Virginia in 2013
expressed a growing sentiment, even within Republican ranks, "Our party…..has been taken
over by a sideshow. The party of Reagan`s big tent has been reduced by some to a dunce cap."
The fact so much of the media still put forward the “both parties do it argument” to
downplay criticism of Republican behavior, tactics and policies rebutted by readily available
evidence is disappointing. The Democrats do it and Republicans do it conveys what many
Democratic politicians are doing is comparable in tone, civility and style to what Republicans
are doing. The “both sides do it argument” is simply a fig leaf for lazy journalism and a claim of
objectivity devoid of evidence. This argument may have been valid for much of our nation’s
history but ignores the radical shift to the right which has occurred in the Republican Party in
recent years. Democrats armed with ample evidence in simple to read graph form need to
press this case as aggressively and doggedly as Republicans press their case, as devoid of
evidence as the Republican case may be.
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
Strong Public Support for Increasing Taxes on the Wealthy and Corporations
It is clear, if greater funding is required to pay for existing and new programs, a solid
majority of Americans support more progressive tax policies which result in the rich and
corporations paying higher taxes than at present. The six changes suggested in Figure 20 elicit
from a high of 79 percent to low of 62 percent when strongly approve and somewhat approve
responses are combined.
Republicans dutifully speaking
on behalf of wealthy and corporate
interests constantly bemoan the high
and uncompetitive corporate tax rate
in the U.S. and why it should be
reduced. Although the nominal
corporate tax rate in the U.S. is high,
owing to all the loopholes, deductions
and
exceptions
Congress
has
generously provided, Figure 21 shows
that what corporations actually pay,
the effective corporate rate, has
fallen steadily since the early 1950s
with a few upward blips along the Figure 20: Public support for six more progressive tax policies calling for
way. Figure 22 shows the corporate higher taxes on the rich and corporations
income tax as a share of GDP has never been huge but has generally fallen to around 2
percent of GDP in recent years; in 2008 the corporate tax as a percentage of GDP for the U.S.
was at the bottom for OECD countries. By any objective criteria the claim corporate taxes are
too high is one of the more ludicrous made by Republicans. What is equally ludicrous is how
the media repeats such nonsense
Figure 21: Effective corporate tax rate in U.S., 1947-2011
Developing a Powerful Evidence-Based Narrative
Figure 22: Corporate tax as a share of GDP, 1946-2009
John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
A 2013 Hart Research Center poll found 70 percent of those surveyed were opposed to
cutting food stamps while those favoring cuts were 30 percent. Even more surprising when
results were tabulated by party affiliation, area type (urban, suburban, rural), race, income and
region of the country majorities opposing cutting food stamps resulted.
Public opinion survey results of Americans and much readily available evidence on many
public policy issues supports the Democratic narrative more than the Republican narrative.
Even though much of the Republican narrative is easily rebutted or shown to be false, the party
is far more successful in directing media and political attention on its narrative. Why are
Republicans so good at driving the political narrative even when public surveys and evidence
tell a different story? First, they make simple declarative statements like Americans are
overtaxed. And they repeat these statements ad nauseam. A less than diligent media, much of
it in bed with Republicans and fearful of taking on corporate interests, especially in light of
many corporations owning media outlets, repeats them until many people conclude they must
be true. What every member of the press should do when a Republican makes this claim is to
ask: what is the evidence Americans are overtaxed? Americans may feel they are overtaxed but
no objective effort to support the claim Americans are overtaxed will be successful because all
the available evidence suggests the opposite. See Figure 3a and 3b.
The Republican Party narrative is as or more effective than the Democratic Party
narrative in shaping what passes for political debate in the media even though much of the GOP
narrative is thin gruel and frequently at odds with public opinion survey results and refuted by
historical evidence. The ability of the Republican Party to push its message with a plethora of
talking points is impressive. The trouble is many of their talking points are not true and
undermined by evidence. Republicans and the media must be called on the carpet when they
repeat talking points but fail to respond to simple evidence questioning their validity.
Democrats need to develop thinking points which serve also as talking points but which are
supported graphically by public opinion results and evidence.
Democratic Capitalism and Political Reform
The case is made throughout this report that the functioning and health of the nation’s
economy and strength of its democracy are in trouble. There are conceptual, structural and
national psychological barriers that need to be addressed head-on if democratic capitalism and
political reform can return our nation to a path leading to a growing economy producing shared
prosperity for all Americans. The “democratic” in democratic capitalism will not proceed very
far if we fail to shore up the foundations of our faltering democracy in a way where “we the
people” are influencing policy and legislation more than “the rich, the corporations and wellconnected”. Thus, political reform and not merely political band aids will have to be applied.
Some business, political, religious and cultural leaders of national stature, and
preferably at least one of the political parties, must break through the national psychological
barrier and broach an uncomfortable truth: if the nation desires to be a forward looking
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John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
modern economy and society, then effective tax rates in the U.S. will have to be raised above
historical levels established since World War II. It is understandable this is not a prospect any
politician is eager to introduce. Several policy goals to face up to this reality are suggested.
Figure 23 confirms the illogic of the
Republican insistence that federal spending must be
cut, even during a recession and recovery period. The
red 2007 recession line trends lower in terms of
recovery than 1981, 1900 and 2001 all milder
recessions than 2007 and ones with Republicans
occupying the White House. Indeed, as shown in
Figure 32, stimulus plans adopted under Reagan in
1981 and Bush II in 2001 were twice as large as
Obama’s stimulus plan in 2009 in constant dollars.
POLICY GOAL: Raise federal revenues to 23 percent
of GDP.
The majority of the over thirty highly
developed modern economies (OECD countries) have
total effective tax rates ranging from five to ten Figure 23: The case against Republican
percentage points of GDP higher than in the U.S. insistence on austerity
(Figure 8a).
Average yearly federal receipts, expenditures and deficits as a percentage of GDP for
presidential administrations from Truman to Obama are presented in Figure 24.
Figure 24: Average Federal Revenues, Expenditures and Deficits as a
Percentage of GDP by Presidential Administration
Administration
Revenues
Expenditures
Deficits
Truman (4 years)
16.00%
15.90%
+0.10%
Eisenhower (8 years)
17.53%
18.10%
-0.57%
Kennedy-Johnson (8 years)
17.64%
18.65%
-1.01%
Nixon-Ford (8 years)
18.10%
19.74%
-1.64%
Carter (4 years)
18.40%
20.80%
-2.40%
Reagan (8 years)
18.18%
22.40%
-4.22%
Bush I (4 years)
17.93%
21.88%
- 3.95%
Clinton (8 years)
19.03%
19.82%
- 0 .79%
Bush II (8 years)
17.61%
19.51%
-1.90%
Obama (4 years)
15.35%
24.05%
-8.70%
REPUBLICANS
17.87%
20.33%
-2.46%
DEMOCRATS
17.28%*
19.84%*
-2.76%*
*Averages are not weighted by the number of years in office.
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Every administration since Truman has run deficits with the Reagan/Bush I terms
covering twelve years from 1981-1992 being the longest period averaging yearly deficits slightly
more the 4 percent of GDP. Average yearly receipts for Republicans were 17.87 percent of GDP
and 17.28 for Democrats; expenditures were 20.33 percent of GDP for Republicans and 19.84
for Democrats. Regardless of political party, yearly deficits have been far more frequent than
surpluses since World War II.
Ronald Reagan oversaw a federal government that spent on average 22.4 percent of
GDP each of his eight years in office. Revenues averaged 18.2 percent of GDP and Reagan ran
large deficits and drove up the national debt. Since politicians find it easy to cut taxes but much
more difficult to actually cut programs, this political reality goes a long way in explaining why in
virtually every year since World War II federal revenues have fallen short of federal
expenditures; yearly deficits being generally larger when Republicans occupied the White
House. Republicans claim the nation is overspending but the more correct claim is: the nation is
not taxing enough to pay for the legislation Congress enacts, runs deficits and has to borrow to
pay its bills. It is worth noting had federal revenues averaged the 22.4 percent of GDP level of
spending under Reagan and since, the vast majority of yearly deficits and the national debt
would have been erased. The Simpson-Bowles Plan which many considered a credible proposal
did favor raising federal revenues to at least 21 percent of GDP. This would be a good first step
in eventually reaching 23 percent of GDP.
Since Republicans continue to worship at the foot of altars they have erected to Reagan
and see him as the epitome of a successful president and contend Reaganomics was a great
success, using federal expenditures as percent of GDP for Reagan’s two terms in office would
seem a logical tax revenue target for those so interested in balancing the budget. Reagan like
many Republicans was keen on cutting government programs and balancing the budget when
out of office but once in office somehow adjusted to deficit spending and mounting national
debt. Cutting federal programs is popular with the American public in general but when it
comes to specific programs not so much; there are political costs many politicians do not wish
to pay in cutting popular programs and thus running yearly deficits has become the norm.
If the Reagan expenditure target of 22.4
percent of GDP is set for federal revenues and serious
constraints or triggers are established to prevent
exceeding this percentage, it would deal more
effectively than the current situation with “tax and
spend” excesses Democrats might pursue or “borrow
and spend” excesses of Republicans. If expenditures
in a particular year are less than 22.4 percent of GDP,
the surplus could go to reducing the national debt,
future infrastructure projects, natural disaster fund, Figure 25: Share of federal budget for discretionary
and mandatory spending and interest
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medical research, a rainy day fund or other designated areas passed by Congress and approved
by the president.
Figure 25 shows in the fifty years between
1962 and 2012 federal discretionary spending fell
from 68 to 35 percent and mandatory spending rose
from 26 to 59 percent. Republicans use this graph to
justify their fervor in pushing for huge cuts in Social
Security, Medicare and Medicaid which constitute
over 80 percent of all mandatory spending (see
Figure 26). Cutting these programs would reduce
spending but go against democratic capitalism since
low and middle income Americans would be most
disadvantaged and this would exacerbate the
inequitable distribution of income which has plagued
Figure 26: Proposed mandatory federal spending, 2012
our economy since the late 1970s (see Figure 3a and
3b). There is little doubt that the aging of the nation’s population and retirees living longer after
retirement has required larger and larger shares of the budget. The only way other developed
countries have addressed these same needs has been to increase their total effective tax rates.
Total taxes as a percentage of GDP was 25.6 percent for the U.S. in 1975 compared with 29.4
percent for all OECD countries, but by 2005 the U.S. figure rose to 27.3 percent of GDP while
the OECD average climbed to 35.8; what had been a 3.8 percent gap in 1975 rose to 8.5
percent in 2005. Europeans seldom can be found speaking enthusiastically about the higher
taxes they pay but most realize higher taxes are required to pay for the wide array of high
quality public goods and services modern democratic societies expect government to provide.
Another reading of Figure 27 is
that if discretionary spending is
essential for a modern democracy one
can make the case the low funding
levels
and
percentage
for
discretionary spending indicates an
unwillingness to increase taxes to
invest
adequately
in
new
infrastructure,
repairing
older
infrastructure, medical research,
housing and community development,
Figure 27: Federal discretionary spending, 2013
education, veterans’ benefits, etc.
Republicans ignore what other countries are doing to modernize and face new realities
and continue to press their “starve the beast” strategy in cutting the size and role of
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government. They are also pushing austerity measures in a recession and during a slow-growth
recovery; a course of action few sane economists suggest or condone. Reducing deficits and
debt—the very deficits and debt path they launched the nation on when they were in
power— and never under any circumstance being willing to raise taxes—are not Republicans
in effect for cutting the government programs which provide some relief from the massive
shift of wealth to the rich and corporations? This is why just about every policy Republicans’
advocate ends up favoring the rich and corporations and is antithetical to any notion of
democratic capitalism. Americans do not seem to fully understand that the “beast”
(government spending) Republicans want to starve provides the long list of public goods and
services every other modern society on the planet finds essential in meeting their responsibility
to protect the “health, safety and general welfare of the population”. Many government
programs provide lower and middle income households public goods and services—education,
health care, mass transit, highways to name a few—which they would otherwise be unable to
afford. Republicans never acknowledge private firms building roads throughout the nation get
virtually all of their funding and profits from government contracting for their services. These
highway construction jobs are technically private sectors jobs but they would not exist without
government funding (taxes).
Another factor driving up taxes in other developed countries mentioned above is
ongoing population shifts and the general aging of the population. As Figure 28 reveals the
median age when Reagan took office was 30 years old while under Obama in 2010 it was
slightly higher than 37 years old. The aging and graying of the population and the Baby Boomer
Figure 28: Age distribution and median age of U.S. population, 1960 to 2010
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generation reaching retirement age place new demands on government programs which other
developed countries have only been able to meet by raising effective tax rates. Certainly, some
of these increases for the aging of the population can be offset by educational costs for younger
age groups as their percentage of the population declines. However, with rapidly changing
labor skills required in an ever changing labor market any offset caused by percentage declines
in traditional education populations will be taken up by new educational and job training
programs upgrading the education and skills of the existing labor force.
Education continues to be one of the best public good investment governments can
make to prepare more U.S. citizens to reach their career goals and highest earning potential. As
Figure 29 indicates cuts in educational spending are perhaps the best example of “penny wise
and pound foolish” policies advocated by Republicans. The reduction in unemployment rates
and increase in median weekly earnings for those achieving higher levels of education is
dramatic. Republicans talk in idealistic terms about giving Americans the freedom to succeed
but are all too willing to slash government programs providing the range of public goods like
education which are essential for upward mobility.
Figure 29: How unemployment rates and median weekly earnings are impacted by higher levels of education
POLICY GOAL: A priority has to be assigned to government programs, policies and spending
likely to advance democratic capitalism principles and reduce income inequality in the U.S.
A survey question could be asked: Would you favor a very small tax (not to exceed more
than one half of one percent) on all stock transactions with revenues from this tax being used
to pay back taxpayers for the Wall Street and bank bailout? The revenues from this tax could be
used only for national debt reduction, extending funding and the life of Social Security, disaster
relief and medical research as determined by Congress and approved by the President? If a
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.005 percent tax was collected on the total value of stock transactions in 2013, it would raise
about $156 billion which would be enough to easily cover every program under discretionary
spending other than defense (Figure 30).
A similar tax might be considered on bank transactions over a certain amount for more
revenue. This would be a way for Wall Street and banks to pay back American citizens for the
federal bailout that was necessary for the economic crash their actions created. Given how Wall
Street has run off with much of the income gains in recent decades, it will be virtually
impossible to adopt policies guided by democratic capitalism which those protecting Wall
Street will not resist. It is human nature for people on Wall Street to favor policies that feather
their own nest. It is not the role of government to coddle the rich and ignore the basic needs of
the unemployed, working poor, middle class or other groups. Most Americans achieving a solid
middle class living standard have done so with assistance from government programs (public
education and low interest loans, federally-guaranteed banking and savings accounts and
mortgages) and have secured well-paying jobs in the private and public sectors of the economy.
Figure 30: Revenues Generated by Small Tax on All Stock Market Transactions
Size of Tax (%)
Amount Raised in 2013
.001
$31.2 billion
.002
$62.4 billion
.003
$93.6 billion
.004
$124.8 billion
.005
$156 billion
For example, the amount from this tax going for national debt reduction might be
pegged to debt as a percentage of GDP. The amount going to Social Security might be
influenced by maintaining solvency of the system for a specified number of years. A set amount
might be targeted to basic research and priority medical research.
“The 1928 Republican Convention opened with a prayer. If the Lord can see
His way clear to bless the Republican Party the way it’s been carrying on,
then the rest of us ought to get it without even asking.” (Will Rogers)
POLICY GOAL: Realizing our nation’s economic and political ills can be addressed by plugging
into progressive and healthy populist currents in the country, many underpinned by once
traditional conservative values, promote and support political reforms and policies consistent
with democratic principles and democratic capitalism.
Encourage all states adopt non-partisan boards to conduct political redistricting after
each national census with the major goal being creating competitive districts. Both major
political parties have shown they view redistricting as an opportunity to feather their own
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party’s nest by redrawing districts to benefit their own party. If districts are more balanced
politically, this will do more than anything to reduce gridlock because Democrats leaning too far
to the left and Republicans moving too far right will have greater difficulty winning in truly
competitive districts.
Advocate and support public funding of campaigns to allow non-millionaires to run for
office and reduce the influence of millionaire and billionaire donors and large corporations.
This should include making the publicly owned airwaves available to candidates at no cost to
viable candidates meeting specified criteria.
Salaries of CEOs should not exceed 150 times the salary of the average worker in firms
or industries awarded government contracts.
All developed countries handsomely reward CEOs and upper management. But the
disparity between CEO and worker pay in the U.S. has risen to Olympian heights when
compared with other developed nations (Figure 31).
Figure 31: Average CEO to worker pay ratio at largest listed
firms, 2012
Figure 32 reveals CEOs, Standard & Poor’s
and corporate profits soared from 1990 to 2005 Figure 32: Comparison in average percentage gains
since 1990
while production workers’ pay and the federal
minimum wage flat-lined. An economic system that generates this disparity is deplorable and in
bed with a political system refusing to protect the “health, safety and general welfare of the
population”. Notice, even during impressive job and economic expansion in the 1990s the
economic fate of production workers’ wages nudged upward slightly while the minimum wage
declined about 10 percent. The graph undercuts the argument “all boats rise with the tide.”
POLICY GOAL: Increase the federal minimum wage to $10.25 per hour and increase by cost of
living at least every two years.
As Figure 33 reveals the nominal federal minimum wage has risen over the years while
the inflation adjusted minimum wage has declined to the point where raising it to $10.25 brings
it to where it was in the late 1960s.
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Women are almost
twice as likely as men to be
in jobs paying minimum
wage and both black and
Hispanic men and women
are more likely to be in such
jobs as whites. The other
positive impact of raising the
federal minimum wage is it
will likely push the wages for Figure 33: Nominal and inflation adjusted minimum wage in U.S. for over 40 years
other low paying jobs higher.
It is hard to imagine a policy which could as quickly reduce
income inequality along the lines democratic capitalism
would suggest. The other advantage is the positive jolt to
local economies since this additional disposable income will
immediately go to purchasing goods and services from local
businesses and greatly benefit Main Street if not Wall Street.
POLICY GOAL: Raise women’s salaries to that of men’s
salaries with equivalent work experience and education.
Unequal pay for women is adverse enough for
women but since so many other adults and children reside in
households headed by women they too are disadvantaged.
Figure 34 displays poverty rates for White, Black, Asian and Figure 34: Poverty rates for women
Latino women. Figure 35 shows sizeable gender gaps
disadvantaging women in nine different
employment areas even when hours
worked, education attained and skills are
taking into account. There is little doubt a
good deal of poverty could be eliminated or
alleviated if women received as much as
men for equivalent work. And many middle
and upper income households would achieve
greater economic security if women received
pay comparable to men.
Figure 35: Gender wage gap for women with control for hours
POLICY GOAL: Federal estate and worked, education and skills
inheritance taxes should be at least 50
percent or higher for all estates in excess of $50 million with downward percentages for
estates over $2 million and a 10 percent federal estate tax for estates under $2 million.
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Estate & Gift tax revenues as a
share of federal revenues peaked in the
1920s and again in the 1940s reached a
high of around 11 percent but have
fallen below two percent since the
1970s (Figure 36). Passing on vast
fortunes to relations who may or may
not have earned or deserve it is
inconsistent
with
the
reducing
inequality
goals
of
democratic
capitalism and at odds with any notion
of meritocracy that inherited wealth
was earned by the person receiving it.
If a higher estate tax is levied, those Figure 36: Estate and gift tax as a share of federal revenues, 1917-1995
relations deserving of it through their talents and hard work will be able to increase their
wealth while those undeserving through the absence of talent and hard work will not do as
well.
Paul Ryan and many other Republicans argue that providing even well-intentioned
subsidies to the poor and middle class will stifle their ambition and willingness to work harder
and turn them into “takers”. Would not this same logic suggest a higher tax on inherited
wealth will cause wealthy individuals to work harder to gain the wealth subjected to higher
taxes back? Alas, looking for consistency in Republican thinking these days is mission
impossible.
POLICY GOAL: Return to a more progressive tax system more like the one which existed for
thirty year after World War II.
The progressivity of tax rates in the
U.S. has declined since World War II as
indicated in Figure 37. Once again the least
progressive phase started around the
beginning of the Reagan administration. A
more progressive tax is compatible with the
goal of democratic capitalism and will move
the country toward a more equitable
distribution of income and wealth than the
present system which is skewed in favor of
wealthy and corporate interest. In Figure 38
Figure 37: Effective tax rates for married taxpayers filing
notice how progressivity in tax rates taper off jointly by income
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when moving to higher income
groups, especially the highest
quintile which is broken into next 10,
5, 4 and 2 percent of earners.
Although nine of the
nineteen other countries have rates
of poverty comparable to or higher
than the U.S. before taxes and
transfer payments are taken into
account, after taxes and transfer
payments all nineteen countries
have lower poverty rates than the Figure 38: Effective total tax rate by income groups in U.S., 2012
U.S. (Figure 39) After taxes and
transfer payments all nineteen
countries make much larger
percentage reductions in poverty
rates than the U.S. Most
economists agree that increasing
incomes
for
lower
income
households has an immediate and
positive impact on local, regional
and national economies because
these households quickly spend it
on the many goods and services
they need. Wall Street may not Figure 39: Poverty rates before and after taxes and transfer payments for
benefit but Main Street businesses selected OECD countries
certainly do.
Figure 40 reveals another simple fact at
odds with Republican rhetoric and talking
points. Growth in federal spending rose faster
under recent Republican administrations than
under Democrats with growth in the rate of
federal spending being lowest under Obama.
And
as
shown
earlier,
Republican
administrations borrowed and spent to
maintain these levels of federal spending and
drove up yearly deficits and the national debt. Figure 40: Annualized growth in federal spending for
various presidential terms
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Republicans talk a good game about balancing budgets but are not prepared to suffer the
political consequences of either raising taxes and/or cutting spending necessary to achieve a
balanced budget. Flapping their gums about fiscal discipline, balanced budgets, cutting
spending and such comes easy but when in power they have yet to show they are willing to bite
the bullet. Never mind many economists are of the opinion that balancing the federal budget is
a “fool’s mission” during a recession and uncertain recovery and yearly deficits and debt, as
long as they remain a reasonable percentage of GDP, should not be of major concern.
Republicans are forever lionizing the economic achievements of Reagan and declaring
the lack of positive results from Obama’s stimulus plan. The table below (Figure 41) indicates
the stimulus plan of $1.768 trillion (2009 dollars) under Reagan which had considerable support
from Democrats in Congress was 2.24 times larger in constant 2009 dollars than Obama’s
stimulus plan which garnered only three Republican votes in the Senate and zero in the House.
Clinton fared even worse and captured no Republican votes for his more modest stimulus plan.
The stimulus plan under George W. Bush was also double in constant dollars what it was under
Clinton or Obama. But, lo and behold many Republicans had no difficulty in supporting stimulus
plans offered during Republican administrations. Reagan’s large tax cuts and purported
economic success were purchased at the expense of yearly deficits and mounting national debt,
which now that a Democrat occupies the White House must be reduced, according to
Republicans, by slashing programs and under no circumstances raising taxes. This demonstrates
the intellectual inconsistency, duplicity and two-faced nature of Republicans in Congress are
not new phenomena, although they have reached epic proportions under Obama. Based on the
evidence, the Republican Party embraces different fiscal and political criteria and acts
differently when a Republican occupies the White House than when a Democrat does.
Figure 41: Congressional Support for Stimulus Plans Offered by Four Presidents
Amount ($ Billions)
SENATE
Democrats
Republicans
Reagan (1981) Clinton (1993)
$1,768*
$736*
Bush (2001) Obama (2009)
$1,635*
$787*
89
37
52
51
51
0
58
12
46
60
67
3
HOUSE of REPRESENTATIVES 323
Democrats
133
Republicans
190
218
218
0
240
28
212
246
246
0
.
*Amount expressed in billions of 2009 dollars for comparison purposes.
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Economic recovery from the nation’s most recent Great Recession has been hampered
by Republican insistence on reducing public employee payrolls in order to curtail spending.
However, as recent history shows in
Figure 42, recovery from the Reagan
1981, Bush I 1990 and Bush II 2001
recessions was aided by increases in
public-sector
employment.
Only
following the Bush II recession which
Obama inherited has public-sector
employment actually declined, further
retarding recovery. With 1.1 million
public sector employees having lost their
jobs in the recent recession and thus
curtailing their spending on eating out,
buying cars, taking vacations and such, Figure 42: Change in Public-Sector Employment Following Last
the estimated multiplier impact has been Four Recessions
the cost of an additional 751,000 private-sector jobs lost as well.
Republicans apparently had little difficulty with countenancing public-sector job growth
when Reagan was president but under no circumstance should any public-sector job growth be
permitted with Obama in the White House. But with their silly notion that private-sector jobs
are the only jobs that count and public-sector jobs are unimportant and should be slashed,
Republicans reveal the absurdity of their ideas and feeble-minded economic understanding. Are
you aware of business people who are only willing to take dollars earned in the private sector
to purchase their goods and services and refuse to accept payment in dollars earned by those
employed in the public-sector? It is a silly question but one which reveals the equally silly
premises from which Republican policies and actions often spring.
Generally effective tax rates were progressive and plateaued from 1945 to the 1980s for
all income groups (Figure 35). A steep decline in effective tax rates occurred under Reagan and
Bush I; the most precipitous decline being for households making in excess of $250,000.
Progressivity is still in evidence since 1980 but certainly less progressive than from 1945 to
1980. The more progressive tax system up to 1980 contributed to a more equitable distribution
of income. Other things being equal, any move toward less progressivity in taxes will
exacerbate income inequality.
The degree to which the Reagan administration is perceived to have achieved positive
economic results owes much to an obvious factor seldom discussed. The myth of Reagan is best
served by concluding it was his political genius and conservative principles that carried the day.
The fact that Reagan’s stimulus plan was over twice as large as Obama’s, his record of deficits
and debt were higher than any previous non-wartime president, and middle and lower income
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Americans fell farther behind the wealthy and well-connected for whom Reaganomics and
other Republican policies were most amenable are conveniently overlooked.
The most under-reported factor contributing to Reagan’s success was the dramatic and
unprecedented drop in energy prices, especially after they had risen so rapidly following the
two energy crises of the 1970s (Figure 43). Yes, the price of a gallon of gasoline falling from
$3.44 to under $2.00 in a few short years contributed immeasurably to whatever economic
fortune the nation enjoyed under Reagan.
This is not a criticism of Reagan but
merely acknowledgement that presidents
can be greatly benefitted or tarred by
events largely beyond their control. Those
supporting a particular president will
ascribe favorable results to him or her
while attributing unfavorable results to
other factors beyond his or her control.
Reagan was fond of saying all
boats would raise with the tide and
Figure 43: Annual gas prices adjusted for inflation 1919-2011. Cost in
benefits will “trickle down” to lower 2012 U.S. Dollars
income groups when businesses and the wealthy prosper. But, in fact, Reaganomics helped
usher in and implanted in our economic system, which had been sharing income gains across
income groups from 1945 to 1979, a “gush up” mechanism increasing inequality in the
redistribution of wealth by shifting the share of income which had been going to middle and
lower income groups to higher income groups. Yachts and luxury liners have been rising with
the tide and sailing to economic paradise but small boats have been left floundering. As this
report has shown, Republican policies serve the “status quo” and have and will continue to
aggravate income disparities further. As this report also demonstrates the economic and
political status of the nation is nothing to quo about.
Summary and Concluding Remarks
The major domestic economic challenge facing the U.S. involves reversing the 1979 to
present economic trend during which widening income inequality benefitting the wealthy has
occurred while the middle class and lower income Americans have foundered. On the political
side the chief task is constructing a useful fact-based narrative, devising economic policies and
passing legislation aimed at returning to the more equitable distribution of income achieved
from 1947 to 1979 when all income groups benefitted in a similar manner in terms of
percentage gain in incomes (see Figure 3a). Not only is the economic health and vitality of the
nation at stake but the vibrancy and relevancy of our democratic system of government as well.
For those espousing market solutions, what happened to the free hand of the market
which produced an equitable distribution in income gains across income groups up until 1979
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but then reversed course and has yielded a very inequitable distribution of income gains since
1979? The self-correcting aspects of the market essential to the free market Adam Smith talked
about have been eroded by behemoth corporate producers and consumers no longer tamed by
but instead overshadowing markets with their immense size and very visible influence. WalMart is not a Mom and Pop store; it possesses and uses its market power to extract favorable
concessions from suppliers. Adam Smith realized such imperfections in markets would occur as
oligopolistic and monopolistic tendencies emerged and/or producers and suppliers colluded to
influence price.
It is the role of government to conduct oversight and insure that rules and regulations
are promulgated to insure markets continue to function properly to the benefit of the larger
society. Government is clearly failing in this responsibility and both major political parties share
some of the blame since both have become too cozy with Wall Street, corporations, lobbyists
and others who in pursuing their own narrower interests seldom take into account broader
societal interests. However, the Republican Party, backed by millions upon millions of dollars
from right wing think tanks, Wall Street firms and corporations, tenaciously pursues policies not
supported by a majority of Americans but which
are most likely to aggravate rather and reduce
income disparities in the U.S.
Republican efforts on behalf of Wall Street
are rewarded as revealed in donations to
presidential candidates and pro-candidate super
PACs in Figure 44. Many extremely wealthy
individuals, as epitomized by the Koch brothers in
Figure 45, and large corporations constitute the
primary donors for the Republican Party. The Figure 44: Wall Street money flows to Republicans, 2012
party’s traditional concern for smaller Main
Street businesses and firms receives only lip
service because so many of the policies
favoring Wall Street and mega corporations
are likely to have a negative impact on Main
Street businesses.
A democracy which permits a market
system to skew wealth distribution
consistently in favor of the rich, erode a once
prosperous middle class and provide limited Figure 45 Koch Industries and Charles and David Koch donations
economic opportunities for many of its to federal and state parities, 2011-12
citizens is unworthy of broad political support and will in time crumble. Such a country is
unlikely to serve as a beacon or example for other countries to follow. Other developed
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countries have increased total effective tax rates in order to provide the range and quality of
public goods and services which have become the hallmark of modern societies. The fact that
many of these countries have passed the U.S. on many quality of life measures appears to
vindicate this decision. The U.S. continues to pretend it can dance the prosperity tune without
paying the piper.
Republican leaders have been casting the country as a nation of “takers” and “makers”.
This epitomizes the depths to which the party’s thinking on important economic and social
questions has plummeted. One is asked to believe the Koch brothers, among the supposedly
preeminent “makers” and “job creators”, have suffered under Obama and this explains their
large donations for Republicans. Through a number of right-leaning lobbying organizations
generously funded by the Koch brothers, the interests of the wealthy and corporations are
advanced. Several of these organizations write legislation concerning public policies the rich
and corporations want to further line their pockets. These boilerplate laws are delivered by
these lobbying groups and have been passed a breakneck speed by Republican controlled
legislative bodies across the country.
Yet, Figure 46 shows the
Koch brothers’ fortune has grown
dramatically under Obama with
their net worth increasing by $18
billion in the first two years. Is there
more Obama should be doing to
adequately
satisfy
the
Koch
brothers’ insatiable appetite for
greater wealth and power? Note
soaring to this stratospheric height
of wealth has been accomplished by Figure 46: Koch brothers’ net worth soars in Obama years
sheading 13,000 employees from
Koch Industries. Was not more wealth going to the “job creators” supposed to create more
jobs; at least a trickle or two to the masses below according to Reaganomics? Sheading labor
fits the MO of the Koch brothers since much of the money they donate goes to aiding
Republicans fighting against unions, workers’ rights and higher wages. Rather than sharing
productivity gains and profits by employing more workers and increasing wages, the
authoritarian or feudalistic capitalism practiced by the Koch brothers, Wall Street, huge
corporations and their ilk siphon off maximum profits with minimum risks to those at the top.
Under democratic capitalism such a huge increase in wealth would be shared with a growing
work force and workers’ wages would increase as labor shares some of the benefits from being
more productive.
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Figure 47 reveals how
workers benefitted as real hourly
compensation tracked closely with
productivity gains from 1947-79
when the nation was on a shared
prosperity path. Although the
economic turmoil of two energy
crises probably contributed to the
lower gains from 1973-79, workers
real hourly compensation kept pace
with productivity. After 1979
increases in hourly compensation Figure 47: Productivity and real hourly compensation growth, 1947-2009
for workers fell further behind
productivity
gains.
The
Reagan
dominated decade 1980-90 may have
brought “morning in America” but many
workers were left “mourning” over small
wage increases. The 1990-2000 period
primarily under Clinton, showed some
improvement for both productivity and
hourly compensation but 2000-09 saw
productivity gains continue upward
while the worker share in terms of
hourly compensation fell. It is quite clear
Figure 48: Percent of employees with private and public union
where wealth generated by productivity membership, 1948-2012
gains is going if it is not going to workers. The Republican Party serves as a reliable political
vehicle delivering more of the wealth generated by the economy to benefit wealthy individuals,
households and corporations and sharing less of this wealth with the broad middle class and
less fortunate in the country.
A factor contributing to workers receiving a smaller share of productivity gains in hourly
compensation gains has been declining union membership. As Figure 48 shows, although
membership in public employee unions grew during the sixty-four year period and has leveled
off since the late 1970s, membership in unions in the larger private sector has consistently
declined from 35 percent in 1948 to under 10 percent by 2012. With fewer workers
represented by unions not surprisingly worker share of productivity gains has declined.
Developing a Powerful Evidence-Based Narrative
John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
The overall decline in the percentage of workers in unions eerily traces the decline in
middle class share of aggregate income (Figure 49). This would suggest there is merit to the
claim unions helped in building the middle class in America. If so, it would follow that those
fighting to eviscerate unions, either in the private or public sector, are also undercutting and
threatening millions of households in the middle class. If politicians are unwilling the fight to
protect the gains of America’s broad middle class, it is no surprise they give little concern for
the plight of the poor.
Part of the Koch brothers
and Republican divide-and-rule
strategy is to pit union workers
against non-union workers because
if workers were to unite in any
meaningful way the future of
feudalistic
or
authoritarian
capitalism favored and ruled by the
wealthy and well-connected would
be in trouble. Republicans and their
donors do not want non-union
workers to realize when unions are
successful in getting higher wages Figure 49: Decline in union membership mirrors decline in middle class
share of aggregate income
and improved working conditions
for their members even non-union workers will benefit indirectly. Figure 47 suggests that the
diminishing economic prospects of many workers whether in the private or public sector and a
shrinking middle class have been linked in some way to the decline in unions as measured by
declining union membership rate. As noted earlier, the reason why billionaires like the Koch
brothers and corporations fund the Republican Party to help wage warfare against labor is
because by weakening the bargaining power of workers it will be easier for titans of industry
and CEOs to make sure a larger share of wealth created in the economy is directed their way.
They and not workers can garner the lion’s share of profits from labor productivity gains.
As so many graphs in this report indicate, the postwar U.S. economy which had resulted
in an equitable distribution of income gains among all income groups up to 1979 shifted
dramatically after the Reagan administration assumed office in 1981. Ever since the U.S.
economy has produced lopsided economic gains with a disproportionate share of the gains
going to upper income households, the super-rich and corporations.
As things go better with Koch, Republicans willingly cut food stamps increasing hunger
for many millions of households, reduce the number of children in Head Start and terminate
unemployment compensation for millions. However, showing their concern for humanity,
Republicans are able once again to find a soft spot in their hearts for millionaires and
Developing a Powerful Evidence-Based Narrative
John Patterson
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Sharing Prosperity USA: Reducing Income Inequality with Democratic Capitalism
billionaires needing another tax break or special interest piece of legislation designed to line the
pockets of their wealthy and corporate donors. They even find it in their heart to reduce
corporate taxes even though as a percentage of GDP they are at an all-time low.
Given the weight and influence exerted by the Republican Party and relentless
conservative media in framing and directing so much of the nation’s political debate, it is
surprising how much readily available evidence and consideration of the historical record
argues against Republican assertions and policies.
A number of Republican talking points: 1) Republicans are more reliable stewards of the
economy; 2) Republicans are better than Democrats at creating jobs; 3) Democratic policies
promote class warfare but Republican policies do not; 4) Americans are overtaxed; 5)
Republicans will not increase deficits and the nation’s debt; 6) Obama is a big spender and
pursues policies not supported by the American people are shown to be inaccurate or false
based on evidence. Graphs depicting real world data have been provided to question if not out
and out refute each of these talking points and overall Republican narrative.
The fact that so many Republican claims repeated over and over again go largely
unchallenged exposes how asleep at the switch and complicit even those in the remaining fairminded media have become in merely repeating these fraudulent claims as if they were factual
or of merit and thus worthy of repeating. You would think a media guided by any standard of
accuracy or truthfulness would point out when any Republican debunks global warming or
climate change and the role humans are playing in impacting both would feel compelled to
remind the listener that the vast majority of scientists conducting and reporting scientific
research results (not just opinion) disagree.
For this reason every Democratic politician, candidate and official should be armed with
at least ten clear, evocative graphs whenever dealing with the media or appearing with a
Republican in any forum. Republicans and the media should become sick and tired seeing
Democrats pulling out another “smoking gun graph” which refutes the specific talking point or
claim trotted out by a Republican or a spokesperson for Republicans. Republicans should be
shaking in their boots into feeling they have a “Kick Me” sign on their backside when they spout
a claim if they know a “Graph of Wrath” awaits them. Americans will remember these graphs
more than whatever political discourse vibrated their eardrums but soon vanished from their
minds.
Developing a Powerful Evidence-Based Narrative
John Patterson
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