Book Review: Will the American Working Class Rise Again?

Sleeping Giant by Tamara Draut

For too many people in this country, the American Dream is a distant memory, something their parents aspired to, but which is now beyond their reach. Today, if you are working man or woman, you often find yourself toiling long hours for low pay in near poverty.  Even the college educated are finding it increasingly difficult to make ends meet as they leave school and enter the work world with extremely high debt burdens and facing an anemic job market.

What do you do about it? In “Sleeping Giant: How the New Working Class Will Transform America” Tamara Draut provides some useful historical perspective.  Draut is Vice President for Policy and Research at Demos, a progressive “think tank” that advocates for political and economic equality.

Her book, published in the Spring of 2016, just as the presidential election was heating up, recounts a history in which big business launched a counter attack on the liberal activism of the late 1960’s and 1970’s by setting up think tanks and Super Pacs and flooding Washington, DC with high-paid lobbyists

The union movement was eviscerated starting in 1947 with the passage of the Taft-Hartley Act. The law banned Communists from union leadership positions; established the principle of “right to work;” allowed workers to “opt out” of paying dues; banned secondary boycotts and sympathy strikes, and gave employers the power to hold anti-union meetings in the workplace. In later years, deindustrialization combined with the rise of the service sector made it increasingly difficult for unions to organize.

Meanwhile, what labor protections remained on the books have (and continue to be) largely unenforced.  Draut recounts how big companies in the ever expanding service sector routinely exploit employees by hiring mostly part timers and not paying benefits. Other companies require “on demand” scheduling and encourage off-the- books work to meet unrealistic production quotas.

The decline of the unions was abetted, according to Draut, by a Democratic Party which, beginning in the late 1970’s and early 1980’s, began appealing more to college educated whites on high-brow issues such as environmental justice, largely turning its attention away from bread and butter economic concerns of working class voters.

For their part, Republicans cleverly exploited the division by appealing to racism and anti-immigrant prejudice, particularly in the South. The rift caused an historic realignment of the political parties with many working class whites and union members switching their allegiance to the Republican Party.

Draut’s book is well written and thoroughly researched. It contains many personal antidotes illustrating how misguided policies can affect the lives of ordinary Americans struggling to make ends meet. She also offers a number of familiar, common sense policy proposals including raising the minimum wage, revitalizing the nation’s infrastructure and reforming the electoral process.

At times, however, the book seems a little starry-eyed about the potential role of working class Americans and the resurgence of the unions to help turn things around and bring about change. The “Sleeping Giant” (i.e., the working class) awoke alright, but in doing so it seemingly reignited the politics of division and despair, scapegoating immigrants and people of color and electing Donald Trump.

To really bring about change in this country, Progressives must rally Americans of all classes and income groups who understand that an economy that rewards wealth and depresses wages for ordinary Americans is ultimately doomed to fail, and everyone loses, rich and poor alike.

Is the Democratic Party up to the task? Can it reform itself? Can it educate and motivate voters on the inherent dangers of economic injustice, broaden its appeal, transcend class and racial divisions and effect positive change?

Can we tear down the wall of big money donations, entitlement and privilege that so characterizes today’s Democratic Party? Bernie Sanders started to show us the way. He may not have succeeded this time, but he blazed a trail.

This was an election so profoundly negative in tone and substance that tears at the very fabric of American Democracy.  At its core, Draut’s book is a much needed antidote to the post -election blues. It reminds us that after more a half century of struggle, we are in this for the long haul, and that there’s hope for a better future.

Time to Reform a Tax System that Favors the Wealthy

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It turns out Donald Trump has carried forward more than $900  million in business losses on his personal income taxes in 1995 and may not have paid taxes for up to 18 years, according to reporting by the New York Times.

What’s outrageous is not that Trump took advantage of existing tax law; it’s that a law allowing him to avoid hundreds of millions in taxes even exists to begin with.

Other provisions of our regressive tax code provide similar benefits to the wealthy and large corporations:

  • The owners of real estate can “depreciate” assets even if those assets are actually increasing in value;
  • Corporations can stash huge amounts of revenues overseas to avoid taxes, and
  • The incomes of hedge fund managers and other professional investors are taxed at lower “capital gains” rates than rates paid by hard working Americans on “ordinary” income.

These are just a few examples of a tax system riddled with loopholes that favor the rich.    But perhaps the most egregious provision of all is that dividend and capital gains rates top out at 20% whereas taxes on ordinary incomes go as high at 39.6%.

As a matter of basic fairness and common sense, the incentive (e.g. lower rates) should be on encouraging people to work hard, improve their lives and get ahead.

Instead, in today’s system, we discourage labor through high tax rates, but give huge breaks to people who invest in real estate or churn paper assets for a living.

In addition, since the Great Recession starting in 2008, an almost exclusive emphasis on monetary policy through the Federal Reserve Bank, including buying bonds and keeping interest rates low, has served primarily to inflate asset values while wages have stagnated for ordinary Americans.

These policies not only favor the wealthy.  They can lead to asset bubbles and put our entire economy at risk.

There is very little that comes out of “Lying Donald’s” mouth that remotely resembles the truth.  But Trump is “right on” in this respect –  the system is rigged and nowhere is that more evident than in our regressive tax system.

Democrats need to stand up and fight for tax fairness.  That starts not just with closing loopholes of the kind Donald Trump has used to avoid taxes.  It also means increasing the top rates on dividends and capital gains so the wealthy pay their fair share.

Supply-Side Voodoo and the Need for Meaningful Tax Reform

For decades, Republicans and their wealthy patrons have outflanked the Democratic Party on the issue of tax reform. Republicans have successfully propagated the “supply side” myth that tax cuts stimulate demand and economic growth. And they have wrapped their bogus message in a veneer of anti-government rhetoric that has effectively resonated across the country.

Three of the top Republican contenders – Donald Trump, Jeb Bush and Marco Rubio – have recently come out with detailed tax proposals and all contains additional large tax breaks for the wealthy in a system that is already heavily regressive. See “Democrats Need to Stand-Up to Special Interests and Reform Regressive Tax Policies”.

As Paul Krugman wrote in Friday’s New York Times in an Op-Ed piece entitled “Voodoo Never Dies”:

“Of course, once the Republicans settle on a nominee, an army of hired guns will be mobilized to obscure this stark truth. We’ll see claims that it’s really a middle-class tax cut, that it will too do great things for economic growth, and look over there — emails! And given the conventions of he-said-she-said journalism, this campaign of obfuscation may work.

But never forget that what it’s really about is top-down class warfare. That may sound simplistic, but it’s the way the world works.”

With the exception of Bernie Sanders, Democrats, meanwhile, have been largely silent or timid on the subject. Sanders has come out strongly for progressive tax policies, calling for, among other reforms, a rise in the top personal income tax rate from 39.6% to 50% and increasing the capital gains tax on the wealthiest Americans.

But other Democratic have not been quite as forthcoming. Hillary Clinton’s wishy washy approach was discussed in a recent TDV blog, “Progressive Taxation: Not on Hillary’s Agenda.”

With respect to Sanders, the “hired guns” that Krugman speaks of are probably keeping their powder dry for now, waiting to see if his candidacy actually survives. It will be interesting to see how the issue is handled in the upcoming Democratic debate on October 13.   Will other Democrats besides Sanders finally stand-up and be counted?  Or will they effectively duck the issue, unwilling to take on the hired guns or, in some cases, their own Wall Street contributors?

One thing you can be sure of: Without some sort of meaningful tax reform, it is going to be  difficult to pay for the investment that America so desperately needs to stimulate economic growth and improve educational opportunity and health care for all Americans.

Democrats Need to Stand-Up to Special Interests and Reform Regressive Tax Policies

The top Federal personal income tax rate (see graph below) has plummeted since the 1950’s when the highest rate paid by the wealthiest Americans stood at 91%. Today, the top rate is just 39.6%, a 56% decline over 34 years.

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Source: Tax Policy Center

The biggest reductions came during the Reagan Administration, from 1981 to 1989, under the theory that reducing tax rates would spur “supply side” economic growth. Well, that hasn’t worked. Today, as TDV noted in a recent blog, Economic Growth is Anemic.

But personal income tax rates alone don’t tell the whole story.  Even though personal income rates are low by historical standards, they are still nominally progressive.

What makes the overall tax system regressive is comparatively low rates – 15% to 20% – for non-wage or “unearned” income – capital gains, interest and dividends.  And since non-wage income is a higher proportion of income for wealthy Americans, many wind up paying a smaller percentage in taxes than many low and moderate income Americans.

In addition, the payroll tax that finances Social Security is capped on incomes above $118,500 — this amounts to a further tax break for the wealthy.

One of the most extreme examples of unfair, regressive Federal tax policy is the treatment of management fees paid to hedge fund and other portfolio managers. It is called “carried interest” and taxed at a top rate of 23.8%, under the assumption that it is really long-term capital gains. This interpretation stretches the bounds of credibility.  As a recent Slate blog pointed out, even Donald Trump has taken issue with that.

The low rate on hedge fund management fees points to a closely related problem: Wall Street and big business generally appear to be writing the rules. Not only are we not sufficiently regulating Wall Street, we are giving them huge tax breaks. When the financial crisis hit in 2008, middle income taxpayers footed most of the bill. Then, the Federal Reserve stepped in further inflated asset values by holding interest rates artificially low, so we have actually rewarded Wall Street for its reckless behavior.

It is not just about Wall Street, however.  It’s a long-standing principle of Democratic politics (even if it seems to have been largely forgotten in recent years) that fairness and equity dictate that he people who benefit the most from civil society should pay a higher proportion of their income in taxes. In addition, the country badly needs the additional revenue from a more progressive tax system to invest in America, its infrastructure and its people, and grow the economy.  A look back over modern history suggests that  high marginal tax rates not only do not harm the economy – they are closely correlated to periods of strong economic growth (see analysis at politicsthatwork.com).

Of the Democratic candidates for President, only Bernie Sanders appears to support a fundamental shift to a fairer and more progressive tax system, as discussed in a recent Daily Kos blog.  Unfortunately, other leading Democrats just seem to want to nibble at the edges of the tax reform, tweaking the tax code without really addressing the underlying issue that the tax code as a whole has become highly regressive and needs a complete overhaul.  SeeTDV blog, Progressive Taxation: Not on Hillary’s Agenda.

Part of the reason many Democrats seem hesitant to tackle our regressive tax system head-on is because Wall Street is an equal opportunity contributor to Democrats and Republicans alike. Or, perhaps, Democrats are intimidated by the Republican / supply side propaganda machine, led by organizations such as the “Club for Growth” – organizations that have pumped millions over decades into aggressive campaigns against higher taxes.

Whatever the reason, it is time for Democrats to stand up to the special interests, do the right thing, and reform our regressive tax system.