â€œTHE ROAD BACK TO 1929â€?
copyright 2005 by Jack Rasmus
â€œZâ€? Magazine, November, 2004
For the first time since 1929, more jobs were lost than created under a sitting President. Officially, more than a million jobs disappeared under Bush from January 2001 through October 2004; unofficially, many more. Almost 3 million of the jobs lost were well paid, often unionized, manufacturing and related jobs, replaced by nearly 2 million mostly low paid service jobsâ€”at least a third of which were part time or temporary with little or no benefits.
But the permanent loss of jobs is not the only similarity with 1929, the year that marked the beginning of the Great Depression. The percent of unionized workers today in the private sectors in the U.S. is less than 10%, below the 11% figure in 1929. And just as 1929 marked the beginning of a decline in hourly wages and incomes for working class Americans, so too have real wages and take home pay for workers steadily fallen under Bush from 2001 through 2003; a decline now accelerating in 2004.
In 1970 the richest 13,000 of all American taxpaying households had incomes approximately 100 times that of the average working American; today the richest 13,000 enjoy an income 560 times that of the average working class taxpayerâ€”about equivalent to the share they enjoyed in 1929 on the eve of the Great Depression.
The Historic Shift in Incomes: 1970-2000
Since the 1970s there has been an enormous shift in the distribution of national income generated each yearâ€”from working class Americans who earn an hourly wage to those who make their living from profits, dividends, interest payments, stock trades, inheritance, and other forms of capital.
The richest 10% of all taxpaying households in the U.S. saw their share of total annual income rise from 33% in 1970 to 48% by 2000—a gain of 15%. Conversely, the remaining 90% of the approximately 134 million taxpayers saw their share of national income each year decline by the same 15%–from 67% to 52%.
Fifteen percent may seem like a small number, but when it is 15% of a $6.2 trillion annual U.S. economy it amounts to approximately $900 billion a year. Had the 15% shift not occurred, each of the approximately 100 million working class Americans who make their living almost exclusively from hourly wages today would be getting $9,000 more in their paychecks this year.
Even more noteworthy is that the 15% / $900 billion is not divided proportionately among the richest 10% taxpayers. The richest 90-95% (the bottom half of the richest 10%) realized no increase in their share of national income from 1973 to 2000, according to the US Census Bureau. Although their incomes rose substantially over the period, their share of the total income pie was still flat.
All of the 15% / $900 billion transferred from the 100 million working class Americans by the year 2000 went to the richest 5% of taxpayers, a group with annual incomes of $178,067 and above. Moreover, within their ranks, the top 1%, or roughly 1.3 million households with annual incomes ranging from $384,192 to $777,450, enjoyed a 47% increase in their share of national income. At the pinnacle of it all were the richest 13,000 households, who had a huge 500% increase in their share of national income.
Assuming even a conservative $300 billion in shifted incomes on average per year, the result is still $9-$10 trillion over the last three decades, 1970-2000, transferred from working class Americans to the wealthiest 5% households.
And all this before the onset of the recent Bush recession.
Accelerating the Incomes Shift: 2001-2004
The roughly 100 million taxpayers who make up the solid core of the American working class who have jobs, or who live off of pensions and social security they earned when they were working, earn no more than $76,000 a year in annual income from all sources. They are the 80% of the taxpaying households in the country with annual incomes below that figure. They own less than 6% of the total stock shares in the country and that is largely tied up in their pension plans. They earn their income almost exclusively from hourly wages, by working overtime or double jobs, or by having other family members enter the workforce to supplement the familyâ€™s household income.
Since 2001 working class families with median income of $43,000 watched as their annual income fell $1,500 over the past three years, a drop of 3.4%. Those earning less than the $43,000 median experienced an even greater decline of 6.0% since 2001.
The shift in national income since 1970 and the accelerating decline in working class family incomes since 2000 were not always the case.
A Comparison: 1947-1973
From 1947 to 1973 the median household income rose each year about 4% on average. That gain was roughly equal to the annual average 4% gain in productivity during that same period.
But from 1973 on the growth of American workersâ€™ real incomes has been flat or declining despite the continued rise in productivity between 1973-2000 and the accelerating productivity gains from 2001-2004.
From 1973-2002 workers received only one-third of the total gains in productivity. Output per person in the U.S. is the highest in the industrialized world, in fact more than 10% higher than output per person in the next closest advanced European economy.
Nevertheless, for the past four years, 2001-2004, with productivity rising on average 4% per yearâ€”twice the yearly rate compared to the â€˜boomâ€™ years of the late 1990sâ€”theyâ€™ve received virtually none of the gains.
As one well-known business columnist from the New York Times reported recently, â€œThe benefits of productivity gains and economic growth are flowing to profits, not worker compensation. The fat cats are getting fatter, while workersâ€¦are watching the curtain come down on the heralded American dreamâ€?.
Some Explanations and Causes
There are several major explanations for this massive, historic shift in incomes from working class America to the rich and super-rich over the past quarter century, and the current accelerating decline in those incomes under Bush since 2001. It didnâ€™t happen by accident or coincidence, but was the result of conscious policies, planned and implemented in the corporate boardrooms, in Congress, and in the Executive halls of government.
Looming large among the various causes are the so-called â€˜Free Tradeâ€™ policies from Presidents Reagan through Bush that have resulted in the loss of five million high paid, mostly unionized jobs in the manufacturing sector since 1980 and their partial replacement with much lower paid service, part-time, and temporary work.
In addition, thereâ€™s the successful Corporate lobbying strategy aimed at holding down the minimum wage for the last quarter century. With few adjustments over the past 25 years, the minimum wage today in real terms has declined by more than 30%.
The de-unionizing of the American work force has also played a major role in holding down wages and thus workersâ€™ incomes. The decline in union membership in the private sector to less than 10% compares to a percentage nearly twice that at the start of the Reagan years. That decline in union â€˜densityâ€™ is a major reason why real hourly wages are less today than they were in 1979, and still continue to fall.
Unions as an effective force for raising hourly wages will likely weaken further, as they are being forced today in contract after contract negotiation to focus by necessity on maintaining health benefits in lieu of wage increases. In the process, they are being locked into longer and longer term contract agreements, often five and six years or more, in exchange for maintaining health benefits demanded by their members. The consequence is a ticking incomes time bomb. As inflation rises over the term of these extended contract agreements, the minimal if any negotiated increases in wage rates will mean hourly real wages in the near future will likely decline even faster than during 2001-2004.
When combined with intense political pressure to prevent any increase in the minimum wage, with the Bush administrationâ€™s current efforts to end overtime pay for millions by means of executive order, with the continuing corporate practice of exporting high pay manufacturing jobs overseas, and with the growing trend to replace full time jobs with part time and temporary employment—the continuing decline in real hourly wages in the U.S. raises serious doubts about the ability of the U.S. economy to generate incomes sufficient to sustain consumer spending and consequent job creation. A chronic, self-sustaining downward spiral of incomes may be now emerging in the U.S., with serious consequences for the US economy in general.
Coping With Collapsing Incomes: Longer Hoursâ€”Greater Debt
To offset the stagnation and decline in their hourly wages, working class families the past two decades have resorted to two alternatives. The first has been to try to protect incomes by working more hours by taking on additional part time jobs, working more overtime, or, by having spouses and other family members take jobs. Until the recent recession, Americans worked far more hours than workers in any of the other thirteen largest industrial nations. While workers in other countries reduced their hours of work significantly over the past two decades, American workers increased theirs by wide margins.
The other major solution undertaken by American workers to offset the decline of family incomes has been to assume a massive increase in personal credit and indebtedness. Americans are now $9 trillion dollars in debt, 40% of which was taken on in just the last four years. No less than $2 trillion of which is credit card debt. And the bankruptcy rate rises steadily every quarter.
Both solutionsâ€”working more hours and taking on more debtâ€”appear to be approaching their limits, however. Family hours worked fell by 5.5%, or 173 hours a year, from 2000 to 2003 reversing the hours and income gains of the late 1990s. In addition, the rate at which spouses are entering the workforce to supplement family hours of work has declined sharply in the last decade.
In short, working more hours and going further in debt in order to stave off faster declines in family incomes than has already been occurring may be coming to an end.
Exacerbating the overall incomes shift the last two decades is the record surge in executive and management compensation. In the early 1980s the typical American CEO earned about 40 times the pay of his average employee. Today, he earns more than 400 and, in some surveys, as much as 500 times. The surge in income at the top levels of corporate management has filtered down to a lesser, but still significant, extent to second-tier management as well. Apart from executive compensation, capital incomes in general have soared the past 15 years with booms in the stock and bond markets, real estate, and foreign investment.
Turning the Tax System On Its Head: 1970-2000
But perhaps the biggest reason for the historic shift in shares of national income has been the radical re-structuring of the tax system in America the past quarter century, from Reagan to Bush. The restructuring has raised the total burden of taxation on working class families while lifting it dramatically on the rich and very rich. The historic shift in incomes described above could not have been possible without the accompanying, equally historic shift in the total tax burden in America.
It is not coincidental, for example, that the top income tax bracket in 1970 was 70% and today is only 35%. Similarly the tax rate on capital gains, from which the rich earn virtually all their income, was 28% as recently as 1987 but today is only 15%. Similar reductions in tax rates for dividends, estate taxes, and property taxes for the wealthy have also been implemented, while tax shelters have proliferated and IRS audit rates for the rich have declined.
Three decades ago the corporate income tax produced 20% of all federal revenues; today it produces only 7%. In 2000, according to IRS data, 63% of all companies in the US reported they paid no corporate tax from 1996 through 2000 on revenues totaling $2.5 trillion. And the effective tax rate for the 37% of companies that did pay some taxes in 2002 was only 12%, compared to 18% as recently as 1995.
Foreign tax shelters for companies and individuals abound. In 1983 offshore tax havens sheltered $200 billion. Today $5 trillion. Of 370,000 corporations registered in Panama, only 340 bothered to file income tax reports in the US. And according to a study by the Federal Reserve Bank of New York, U.S. deposits in the Cayman Islands tax haven amount now to more than $1 trillion and are growing by $120 billion a year.
In contrast, the payroll tax rate, which all working class Americans pay, has been raised since 1983 to the current 12.4% and the income on which it is levied has been raised year after year to nearly $90,000. Since the 100 million core working class Americans earn well less than $90,000, they pay the payroll tax on all their annual income. For millions, the payroll tax reduces their take home income more than their income tax payment. The payroll tax constitutes 40% of all federal tax revenues today, when it once accounted for only 10% of such revenues before 1980.
Politicians declared with much fanfare in 1983 that an increase in the payroll tax was necessary to save Social Security, and in 1992 Congress passed a rule to put the social security surplus created by it in a â€˜lock boxâ€™. But the â€˜lock boxâ€™ has been broken into every year and the $1.4 trillion surplus it generated since 1983 is gone—to pay for federal budget deficits to finance wars and tax cuts for the rich.
Now Bush, Federal Reserve Chairman, Alan Greenspan, and others are loudly telling the American worker that Social Security is in danger once again and without sufficient funds. The retirement age must be raised and benefit levels cut. Ironically, it was the same Greenspan who in 1983 headed the Presidential Commission to â€˜save Social Securityâ€™, led the charge to raise the payroll tax, and assured everyone that Social Security would now be safe for a century to come once the payroll tax were raised.
As one listened to the debates in recent months between Bush and Kerry about how to pay for minor fixes to a crumbling health care system, it is worth noting that single payer universal health care could be provided to all Americans by simply requiring the wealthiest 10% of taxpayers, the 11.3 million who now earn more than $103,000 a year, to pay the same 12.4% payroll tax rate on all their incomeâ€”just like working class Americans now pay on all their incomes.
That simple reform would generate annually more than $300 billion in revenue, with the amount rising as their incomes continued to rise. An additional $100 billion a year could supplement this if Congress stopped â€˜borrowingâ€™ from the Social Security Trust Fund and honored its own â€˜lock boxâ€™ rule. The two sources produce a combined total of $400 billion a year, increasing as incomes of the rich and super rich increase, yielding a sum more than enough to cover single payer health care for all.
In 1981 Ronald Reagan gave $758 billion, then a record, in tax cuts targeted largely to the wealthy. Capital gains taxes were again cut under Reagan in 1987, from 48% to 34%, and the top rate of the income tax lowered from 50% to 28%. A new â€˜Alternate Minimum Taxâ€™ was added which, originally intended for the wealthiest, now threatens today to become another major tax burden on working Americans. And, as previously noted, the rise in the payroll tax also began under Reagan in 1983.
Under George H.W. Bush and Clinton the shift in incomes and taxes continued but at a slower pace. Tax rates were raised in 1990 and 1993 but tax loopholes and individual tax shelters were added back in by the dozens. Tax rebates were given to workers in order to assist recovery from the 1991-93 recession. But the latter were temporary and never structured as fundamental changes to the tax system, such as have occurred under Reagan and now Bush. In Clintonâ€™s second term, in 1997, another major capital gains tax reduction was enacted.
All this was followed by the massive tax cuts by Bush totaling more than $2 trillion between 2001 and 2004, accruing largely to the top 1% and 5% of taxpaying households.
Phase 1 of the Bush Plan: Slash Personal Income Taxes for the Rich
At the heart of the Bush tax cuts were the major Tax Cut Acts of 2001 and 2003, the lionâ€™s share of which addressed capital incomes, reducing the top tax brackets for the income tax, lowering the capital gains tax rate for stock sellers, reducing taxes on dividends and on estate taxes for high income payers. Less well noticed, however, were other tax cuts sandwiched in along the way which provided an additional host of industry-by-industry tax breaks for corporations, as well as individuals, all carefully buried in other legislation passed by Congress or by Presidential executive order or rule changes. Working class families were thrown a few tax crumbs in 2001 and 2003 in the form of one time rebates, small adjustments to the child care credit or marriage penalty, and the like.
To ensure passage by Congress, Bush and corporate lobbying friends cleverly â€˜backloadedâ€™ the $2 trillion giveaways so most would take effect after 2004. So the biggest impact of these tax cuts for the rich are yet to come.
Notwithstanding that â€˜backloadingâ€™, it is projected that of the more than $100 billion of the tax cuts set to take effect in 2005, 73% will go to the top 20% of tax payers. The remaining 80% with incomes of less than $76,400 a year will share the 27% left. Those with incomes over $1 million a year in 2005 will receive a tax cut of $135,000 a year. All those with incomes less than $76,400 will get about $350 on average.
The Brookings and Urban Instituteâ€™s Tax Policy Center estimates the annual transfer in income to the rich and super rich flowing from the Bush 2001-2003 tax cuts is $113 billion a year.
Phase 2 of the Bush Plan: Further Roll Back Corporate Taxes
It is well known among lobbyists that while the 2001 and 2003 tax cuts focused on personal incomes of the richest 5% of taxpayers, Corporate America was promised by the Bush team its time too would come. While Bushâ€™s tax strategy from 2001 through 2003 was to get personal incomes taxes reduced (reduce top tax brackets, cut capital gains, dividends, estate taxes, etc.) for wealthy friends and campaign contributors, in 2004 the Bush strategy shifted. Henceforth the goal was not only to make personal tax cuts for the rich permanent, but to add further tax cuts for their corporationsâ€”the originating source of those personal incomes.
For years conservatives have railed against â€˜double taxationâ€™ of the rich—aimed first at their companies and then at their incomes derived from those same companies. What the Bush record shows, however, is that the U.S. is now experiencing a new policy of â€˜double reverse taxationâ€™—record tax cuts for the rich as individuals followed by further tax cuts for their companies.
After allowing the wealthy to gorge themselves on his 2001-2003 tax feast, in August 2003 Bush publicly declared he would seek no further tax cuts. However, within days Bush supporters in the House of Representatives immediately proposed an additional $128 billion in corporate tax cuts. Not to be outdone, supporters in the Senate proposed a six month â€˜tax holidayâ€™ for US corporations that had accumulated $400 billion in foreign profits on which they had not bothered to pay any US taxes. Instead of enforcing the existing law to pay the required 35% corporate tax rate on the $400 billion, the Senate offered a new rate of only 5.25% if companies would only â€˜bring their money backâ€™. The corporate beneficiaries of this extraordinary Congressional largess included oil and gas refiners, movie studios, technology and pharmaceutical multinationals, and engineering companies like Halliburton. The Senate message to Corporate America thus was clear: the way for corporations to get bigger tax cuts was to shift more investment, jobs and profits offshore and use that as a barter chip to get tax cuts in the U.S. In short, a clear incentive to further corporate tax evasion.
No fewer than three separate corporate coalitions have been lobbying for their preferred versions of corporate tax cuts, bidding up a Congress stumbling over itself trying to satisfy all corporate comers.
One corporate lobbying group, the Coalition for Fair International Taxation, led by General Electric, sought to reduce the foreign profits tax. A second, led by Boeing and Microsoft, called the Coalition for U.S. Based Employment, lobbied for a $60 billion permanent reduction in the corporate tax rate, from 35% to 32%. A third, led by Hewlett-Packard, pushed for the one year â€˜tax holidayâ€™ noted above. All have been major exporters of U.S. jobs offshore; ironically each argues their tax cut proposal is the way to create jobs at home. By mid-year 2004 all three groups ended with nearly everything they each sought in the combined tax cut legislation currently up in the House and Senate for a vote. And the pork barrel got even larger as other special interests and lobbyists jumped on board.
A parallel $31 billion tax cut for oil and energy companies, which failed to pass in November 2003 by only 2 votes in Congress, was resurrected as a $19 billion add on to the general corporate tax cut by mid-2004. More than $10 billion was added for the Tobacco companies. Other special interest provisions have been thrown in for the wine industry, aerospace, and the child tax credit extended to families with annual incomes up to $309,000 by right wing tax radicals in the House of Representatives. By summer 2004 the various corporate and special interest tax cuts proposed amount to $155 to $170 billion, depending on the House or Senate versions.
Initially the Bush legislative strategy in 2004 was to hold â€˜hostageâ€™ those modest provisions (child care, marriage penalty, 10% bracket, etc.) of the 2001 and 2003 laws that would benefit working families. Bush insisted the provisions for the rich and super rich would have to be made permanent for the next 10 years first. Otherwise, he declared, he would veto any bill.
However, as the drums of the November 2004 elections grew louder, in July 2004 Republican leaders in Congress attempted to cut a deal with moderates permitting a two-year extension of the modest provisions in the general tax cut laws passed in 2001 and 2003. This would have allowed the immediate extension of the child care credit, the marriage penalty, and other relatively minor benefits affecting working families, granting working class Americans about $27 billion of the $100 billion in tax cuts scheduled for 2005. But the White House intervened at the last moment in July and prevented the Congressional compromise, insisting that Bushâ€™s 2001 and 2003 tax cuts for those with capital incomes must be extended for a minimum of five years or else no deal.
By the end of this past September, however, the power of the Corporate tax lobby was increasingly felt on Capitol Hill. Not willing to tolerate further delays, or to wait until after the elections to pass the corporate tax cuts in a lame duck session of Congress, they demanded the de-coupling of the $27 billion in cuts for working class families (marriage penalty, child care credit, etc.), in order to move the corporate tax provisions forward post haste before the November election and the October adjournment of Congress. The Bush administration backed off its previous position insisting on linkage. Congress more than willingly obliged.
The way now lay clear, while they still had the votes, to pass the various corporate tax cut measures before adjournment. The outcome in October, in a session of Congress extended for the sole purpose of passing the bill before the November elections, was 700 pages of legislation containing hundreds of tax cuts for corporations, including a provision eliminating the obligation of corporations under current law to pay $42 billion of taxes on $500 billion of offshore profits. The total value of the corporate cuts are still not exactly known and will take weeks to sort out, but are likely in the $140-$160 billion range.
$73 billion in personal cuts for the wealthy in 2005 alone, and another roughly $140-$160 billion for their corporations. More than $2 trillion total over the course of a decade.
But donâ€™t expect the recent waves of personal and corporate tax cuts to stop there. The outline of the next phase of tax cuts has already begun to appear.
Phase 3 of the Bush Plan: Eliminate Taxes on All Capital Incomes
At the top of the Bush agenda in a second term is nothing less than a radical restructuring of the entire tax code; new tax proposals to undermine social security and union negotiated pension and health plans; and perhaps a national sales tax to totally replace the income tax.
George Bush and corporate America are intent on achieving nothing less than the radical goal of eliminating taxes on all capital incomes. Doing so is critical to their objective of continuing to shift incomes nationally from working class families to the rich and super rich. Nor do they care if record budget deficits are the result. Many of their more right wing radical friends, including those in Congress, actually want larger deficits. They see chronic, record deficits as producing the budget crisis necessary to use as an excuse to privatize social security and dismantle what remains of the Roosevelt New Deal programs of the 1930s.
Their goal is nothing less than a radical economic revolution in America that will turn the clock back to the 1920s, the road back to 1929. A road for working class Americans filled with potholes of declining wages, few retirement guarantees, extended hours of work at straight time pay, a virtually non-existent minimum wage law, weak and ineffective unions, and an end to progressive taxation that interferes in any way with the uninterrupted expansion and growth of the incomes of the rich and super rich.
National Writers Union, UAW 1981, AFL-CIO