The Presidential Election: Where Is Our Country Heading?

The purpose of democratic government, as stated in the Declaration of Independence, is to secure the rights of the people to life, liberty, and the pursuit of happiness.  We may have never pursued this perfectly, certainly not for all the people.  But we have now, unfortunately, reached a point in our history where the best interests of the people, securing their inalienable rights, is no longer the driving force behind government.  

Our government has stopped being “of the people, by the people, and for the people.”  Instead, it has become a government which, while elected by the people, primarily serves the interests of corporations and the rich.  

This is true of Congress.  Legislators, both Republican and Democrat, have become so dependent on the financial donations of corporations and the rich to run their election campaigns that they provide a ready and willing ear to corporate lobbyists.  (It should, however, be noted that while Democrats have fallen into the same trap, they do still promote the public interest, just not as unequivocally as they should.)  

It is also true of Federal regulators.  These government employees are supposed to protect the interests of the public but instead, as we’ve learned, often become so close to the corporations they are supposed to regulate that they are more interested in protecting them than the public.

A result of this perversion of government’s purpose can be seen in the increased income inequality that we face today.  There has always been and there will always be income inequality.  It’s in the very nature of things … some people will be rich and others poor.  But from the end of WWII to the early 1970s, incomes grew rapidly across all income groups. 

Beginning in the 1970s, however, income growth for the middle and lower income groups either stagnated or slowed sharply while incomes at the top continued to grow strongly.  For example, average real wages for the bottom 90% of working Americans only rose from $28,500 in 1979 to $33,200 in 2014 (a 16% increase).  By contrast, average real wages of the top 1% of Americans rose from $269,000 in 1979 to $671,000 in 2014 (a 249% increase).  Since the top 1% have substantial income over and above wages, the true inequality is even worse, with average total income for the bottom 90% still being around $33,000 in 2014 while the average total income of the top 1% was $1,200,000.

  

What role did government have in this increase in inequality?  Globalization of the economy, which is a primary cause of the increased inequality, was fostered by government policies together with changes in technology.  

Second, and less discussed, was the loss of power of labor unions.  This resulted partly from the loss of manufacturing jobs due to companies’ moving jobs off-shore (a major detrimental impact of globalizations) and partly from the increase in anti-union “Right to Work” laws in much of the country (an additional 7 states including for the first time, “rust-belt” states).  

In both cases, government policy supported the interests of corporations in obtaining cheaper labor and thus increasing profits.  Other government policies, such as deregulation (pursued by both Republican and Democratic administrations post-Reagan) and significant tax cuts for the rich under Reagan and Bush II, furthered the accumulation of wealth at the top of the wage spectrum.

The impact of this increased income inequality has been anger towards government for what the formerly middle class views as a lack of concern by government regarding their plight.  They blame government, and to a large extent rightly so, for their financial distress.  Government in this case really is the problem, in that it has acted at the behest of big business.  But it is also the potential solution.  However, government has not done anything to date to really improve their lot.  Lots of talk but no action.

And so in this presidential election season, we have seen two phenomenon.  On the Republican side, Donald Trump, campaigning as an anti-establishment avatar, has stoked the fears and angers of this large group of mostly white voters and has reaped the benefit of their vote, and thus the Republican nomination, against a crowded field of far-right but tainted-by-government candidates.

On the Democratic side, Bernie Sanders also campaigned as an anti-establishment avatar,  seeking to upend the influence of corporations and put “the people” back in the forefront of government policy.  His campaign was much more successful than anyone every dreamed, but he had the misfortune of having just one opponent who, although few felt strongly about, was strongly supported by the party establishment and was considered safe by most.  And so he lost.

Of all the candidates, only Bernie Sanders offered the possibility of a truly transformative Presidency.  Because only he had at least the potential of getting the large mass of people who usually don’t vote … because they feel the government has no concern for their problems … to vote and thus win back the House as well as the Senate.  

So regardless whether Trump or Clinton wins, the future does not look good for the American people.  If Trump wins we will have a bully blowhard as President who depends on his instincts, not his thought (or the thought of those around him).  He will try to dismantle most of what President Obama accomplished for the American people.  I could go on and on, but I won’t.  If Clinton wins, government will be mostly business as usual both because of her ties to the business establishment and the fact that at least the House will likely be in the hands of Republicans, which means she will not be able to move her policy agenda with much success.

In either case, the primary direction of government will not have changed.  Although clearly a Trump presidency would be far worse for the American people and the country than a Clinton presidency.

Bernie Sanders was calling for a soft revolution, and that is what this country needs at this point in time.  We need a major shakeup in the direction of government.

Thomas Jefferson famously said that a democracy needs a revolution periodically to keep it alive.  Certainly we have come to the point where that is what our country needs because our democracy has become one in form only, not in substance.  

We must return to a government which is “of the people, by the people, and for the people,”  Corporations should certainly have a place at the table, in recognition of their importance to the economy and the welfare of all, but they should not be in the driver’s seat.   We have long since learned the emptiness of the phrase, “What’s good for General Motors is good for the country.”

America’s Regressive Progressive Tax System

Most people think that under our tax system the wealthy pay a higher percentage of their income in taxes than those with less income, with those with the lowest income paying the lowest rate.   This is called a progressive tax system.  

The reasoning behind a progressive system is twofold: one philosophical, one practical.  

Philosophically, under our social contract, all citizens have a responsibility to support the work of the government in providing for the greater good and its helping insure that those in need still have a chance at “life, liberty, and the pursuit of happiness” as promised in the Declaration of Independence.  Those citizens with more wealth, who have benefited more from the system, have a moral responsibility to give back and support their fellow citizens by contributing a greater share of their income through taxes to support the government.

Practically, the wealthier you are, the higher the percentage of your income you can afford to pay in taxes because despite that higher tax rate so much is still left over for your personal use.  On the other hand, if you have only a very modest income, you can hardly afford to pay any taxes and still have a livable standard of living.

Our federal income tax is based on this theory, although it is far less progressive today than it has been in the past.  For example, in the 1950s during the Eisenhower years, the wealthiest American’s payed a marginal tax rate of 90%.  During the Johnson and Nixon years, that rate dropped to 70%.  Under Reagan the rate dropped to 50%.  And under Bush II, the rate dropped to 35%.

Did these higher federal income tax rates hurt the wealthy or the country during this period?  No.  The wealthy were still quite wealthy.  And the country was strong economically, with of course the usual dips of the economic cycle.

So what have we gotten in exchange for these reduced taxes on the wealthy?  Nothing but ever increasing deficits (despite a reversal in the last years of the Clinton presidency), reduced government ability to pay for infrastructure projects, education, and provide a safety net for those in need, and increased income inequality.  The economy and nation have not grown stronger; the rich have just gotten richer.

But the story doesn’t end with the federal income tax.  It gets much worse when factoring in state and local taxes, especially sales taxes, which fall disproportionately on those with less income and are thus regressive.  This is especially severe in those states that currently have no income tax and so rely totally on regressive taxes.  For example, the state of Washington has the most regressive tax system in the country.  There the poorest 20% of residents pay seven times as much of their income in state and local taxes as the top 1%.

Each year, Citizens for Tax Justice issues a report, “Who Pays Taxes in America.”  The most recent CTJ report shows that combined local, state and federal taxes produce a system that more resembles a flat tax than a progressive tax: In 2015: 

The top 1% - those with incomes averaging $1.7 million - will pay 32.6% of their income        in taxes.  

The same is roughly true for the next 9% - those averaging more than $176,000. 

The next 50% - those averaging between $49,000 and 125,000 will pay an average of 29%.  

The next 20%, those with an average of $30,000, will pay 23%.  

The bottom 20%, averaging $15,000, most of whom live in poverty as defined by the government, will pay 19% of their income in total taxes.

The unfairness of this system is manifest.  It’s unfair even that those who earn $200,000 a year pay the same tax rate as those earning many millions.  It is outrageous that the middle class pays virtually the same rate … 29% as opposed to 32%.  It is beyond belief that the poorest 20% of Americans pay 19% of their incomes in taxes … yes, they typically pay little or no federal income tax, but state and local sales taxes take a substantial cut out of their pockets when they are barely scraping by.

This describes a tax system that should put the United States to shame.  And it should put the wealthiest Americans to shame, although I think the evidence shows that that emotion is almost impossible to call forth from them, the example of Warren Buffet to the contrary notwithstanding.

The solution is that the federal income tax should be put back on a much more progressive scale, as it was for most of its history.  And state and local governments should be required to use a progressive income tax for their tax revenue rather than a sales tax or other regressive tax system.  

This not only makes moral sense, it makes economic sense.  The result would be a substantial boost in real income for most Americans with a resulting boost in spending and thus to our consumer economy.  If the net changes were not tax revenue neutral … that is if the changes resulted in higher tax revenues … that would provide much-needed funds to begin repairing our country’s neglected infrastructure and for other important but underfunded government tasks.

Our current tax system should be unconstitutional, but there is no measure in the constitution that requires fairness in the legislative process.  But if legislators and the general population cannot see, when presented with these facts … and they are facts, that our tax system is unfair, not to the rich as they frequently complain but to the rest of the populace, and that it hinders a large portion of the population in the exercise of their right to “life, liberty, and the pursuit of happiness,”  then our nation is at a very sad point.

Income Inequality Per Se Is Not the Problem

In an ideal world, at least in my mind, you would not have the extremes of rich and poor.  But people have different intelligence levels, different talents, and different aptitudes which, even with all other things being equal, would translate themselves in the real world to significant disparities in earning opportunities.  Add to that that all other things have never been equal and we have the situation in which rich and poor have always been a part of human existence and it will likely always remain so.  But that fact in and of itself is not the problem.

The problem is how the rich, or I should say the very rich, the top 1%, got there and are increasing their share of the economic pie at the expense of the rest of us.  It’s a classic case of exploiting those less powerful to make your own fortune.

“Oh come off it,” you  may well say.  “That’s a bit extreme.  A leftist diatribe.”  Alright, it may be, but lets see what the facts show.

The very rich, or those they inherited their money from, get there typically through a combination of two things.   First, they engage in an enterprise which in one of various ways exploits, which is to say unfairly takes advantage of, others for their own personal benefit.  (This does not gainsay the innovative value or quality of the product or the management excellence of the enterprise.)  Second, they influence Congress to slant the tax laws in a way which benefits themselves at the expense of everyone else.  

The first point is understood by anyone with an open mind as examples are everywhere.  Whether one looks at the classic robber barons of the early industrial revolution (and most corporate CEOs today) or the masters of finance who orchestrated the toxic investment instruments that resulted in the 2008 market crash, the very rich have achieved their wealth and power by exploiting others, whether it’s their workers or whether it’s investors (yes, they even prey upon their own clients) or whether it’s gullible people looking to buy a home. 

“How can you say that workers are exploited?” you may ask. “They have their contracts and if there’s a union, collective bargaining.”  Decades ago, when industrial jobs were plentiful and unions were strong, your point would be well-taken.  And in that era, the disparity between CEO compensation and worker compensation, although large, was far narrower than today.  Blue collar workers were solidly middle class, except in the South where there typically were no unions and workers were exploited.  

In today’s global economy, workers have no power, even if there is a union, because the job market is so bad and the owners have the practical opportunity in many cases to close and open up business in a lower-cost foreign country.  And so workers are taken advantage of because management and stockholders have only one concern ... improving the bottom line.  If the choice is between maximizing profits and giving the workers a higher wage, the choice will always be to maximize profits.  

As a result, workers’ wages have stagnated over the past few decades and if their jobs have gone and they’ve found other employment their wages have typically fallen.  In both cases, the working class has been left ever poorer, just treading water above poverty, as costs continue to rise.   While the CEOs and management keep getting richer.

But it is in the impact of the tax laws which have been passed to enable the rich to become richer (supposedly to grow the economy through increased investment and the “trickle down” effect, although that’s been shown to be nonexistent; the economy has not exploded in growth as we were promised) that the hidden and less known harm of income inequality has been felt.  The reason is quite straight-forward.  Lower taxes = less revenue for the government.

Because the tax breaks that the very rich and their corporations receive have greatly reduced tax revenues (15.8% of GDP in 2012, the lowest since 1950, compared with the high of 20.6% in 2000), there is less money available for government, whether federal, state or local, to accomplish their responsibility.  That responsibility as stated in the Declaration of Independence is to “secure the rights” of all people to life, liberty, and the pursuit of happiness.   

Government has for much of the 20th century tried to meet that responsibility and ensure the general welfare through programs that provide quality education for all, support for the poor, a sound infrastructure, and all the basic services that government needs to provide and pay for in order for the country and individual communities to functions effectively and efficiently and thrive.  

But with significantly reduced tax revenues, all levels of government are finding it necessary to reduce services and quality in almost every area of government activity (and no, the problem is not principally the recession but tax cuts for the rich and corporations as well as the holy cow of military spending).  This has not only resulted in exacerbating the impact of the recession, increasing the abjectness of those already living in poverty and throwing more people and families into poverty.  Through cuts in services, it is making the already disappointing experience of many of our citizens in the areas of education, health, income inequality, social mobility, and equal opportunity (see my post, “American Exceptionalism - A Myth Exploded”) even more dismal.

It is no crime to be rich and successful.  But to be rich and successful at the expense of others, especially those with less power, is a social crime.  And it is a violation of the American social contract under which we all as citizens share responsibility for government’s efforts to promote the general welfare, each contributing according to his means, which unfortunately is more violated today than honored.  

America has enough wealth to ensure that those who are poor, and everyone else for that matter, have access to good health, education, and housing and do not go hungry.  America has enough wealth to insure that the infrastructure on which our viability depends remains strong and world-class.  And still allow people to be quite rich.

If America continues on this path where the rich feel entitled to more and more and where they have no concern and feel no responsibility towards their fellow citizens, let alone employees, then America’s greatness will become a thing of the past.  Not because China or some other country vaults into first place as the largest economy in the world.  But because America will have failed its own people, its own heritage, its own promise.