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How Democrats can become relevant again (and rescue the nation while they’re at it)

Robert Reich, professor of public policy | March 3, 2011

Republicans offered Democrats two more weeks before the doomsday shut-down. Democrats countered with four. Republicans held their ground. Democrats agreed to two.

This is what passes for compromise in our nation’s capital.

Democrats have become irrelevant. If they want to be relevant again they have to connect the dots: The explosion of income and wealth among America’s super-rich, the dramatic drop in their tax rates, the consequential devastating budget squeezes in Washington and in state capitals, and the slashing of public services for the middle class and the poor.

It is not a complicated story. Begin with what’s happened to the typical American, whose wages have been stagnant for thirty years. Today’s typical 30-year-old male (if he has a job) is earning the same as a 30-year-old male earned three decades ago, adjusted for for inflation. (Although women are doing better than they did 30 years ago, their wages still trail men’s.)

The bottom 90 percent of Americans now earn, on average, only about $280 more per year than they did thirty years ago. That’s less than a 1 percent gain over more than a third of a century. Families are doing somewhat better but that’s only because so many families now have to rely on two incomes.

But wait. The American economy is more than twice as large now as it was thirty years ago. So where did the money go? To the top. The richest 1 percent’s share of national has doubled – from around 9 percent in 1977 to over 20 percent now. The richest one-tenth of 1 percent’s share has tripled. The 150,000 households that comprise the top one-tenth of one percent now earn as much as the bottom 120 million put together.

Given this explosion of income at the top you might think our tax system would demand a larger share from them. But you’d be wrong. You’re not taking account of the power of the super rich. As income and wealth have risen to the top, so has political power. As a result, their taxes have plummeted.

From the 1940s until 1980, the tax rate on the highest earners in America was 70 percent or higher. In the 1950s, it was 91 percent. Even if you include deductions and credits, the rich were paying a far higher share of their income than at any time since.

Under Ronald Reagan the top rate dropped to 28 percent. Under Bill Clinton it rose to 39 percent and then under George W. Bush dropped to 36 percent. As you recall, Republicans have managed to keep it there. Their avowed aim is to keep it there permanently.

Meanwhile, estate taxes (which hit only the top 2 percent) have been slashed, as have taxes on capital gains – which comprise most of the income of the super rich. In the late 1970s, capital gains were taxed at well over 35 percent. Under Bill Clinton, the capital gains rate was 20 percent. Now it’s 15 percent.

So who’s going to foot the bill for everything we need? Even before the Great Recession, the middle class’s share of the nation’s total income had shrunk. Yet their tax burden had grown. They were paying a bigger chunk of their incomes in payroll taxes, sales taxes, and property taxes than decades before.

Then came the Great Recession – and with it, lower tax revenues. That means all levels of government are squeezed. Obviously, the middle class can’t pay more in taxes. But because the Democrats seem to lack the intestinal fortitude to suggest the obvious – that taxes need to be raised on the super rich – we’re left with a mess.

Teachers are being fired, Pell grants for the poor are being slashed, energy assistance for the needy is disappearing, other vital public services shriveling. Regulatory agencies don’t have the budgets to pay the people they need to enforce the law. Even if it wanted to the Securities and Exchange Commission couldn’t police Wall Street.

All of which is precisely where Republicans want the nation to be. It sets them up perfectly to blame government, blame public employees, blame unionized workers. It lets them pit workers against one another, divide the Democratic base, and promote the false idea that we’re in a giant zero-sum game and the nation can’t afford to do more.

It diverts attention from what’s happened at the top — so no one sees how well CEOs and Wall Street bankers are doing again, no one views the paybacks and tax giveaways engineered by their Republican patrons, and no one focuses on the tide of money flowing from the likes of billionaires Charles and David Koch into Republican coffers.

Where are the Democrats? Shuffling their feet, looking at the floor. “Please oh please give us four weeks before you shut us down,” they ask. “No,” say the Republicans, “you’ll get only two.” “Well, alright then,” say the Democrats.

Here’s what Democrats should be saying:

Hike taxes on the super-rich. Reform the tax code to create more brackets at the top with higher rates for millionaires and billionaires. Absurdly, the top bracket is now set at $375,000 with a tax rate of 35 percent; the second-highest bracket, at 33 percent, starts at $172,000 for individuals. But the big money is way higher.

The source of income shouldn’t matter – salary, wages, capital gains, other unearned income – all should be treated the same. There’s no reason to reward speculators. (Don’t penalize true entrepreneurs, though. If they’re owners who have held their assets for at least twenty years, keep their capital gains low.)

And while you’re at it, raise the ceiling on income subject to Social Security taxes. And bring back the estate tax.

Do this and we can afford to do what we need to do as a nation. Do this and you prevent Republicans from setting the working middle class against itself. Do this and you restore some balance to a distribution of income and wealth that’s now dangerously out of whack.

Do this, Democrats, and you have a chance of being relevant again.

Cross-posted from Robert Reich’s blog.

Comments to “How Democrats can become relevant again (and rescue the nation while they’re at it)

  1. If the comment I read is from the same Bob Rubin that went to Citigroup, then he has nothing to stand on. Citigroup was one of the companies who raped this country!!!!!

  2. Dear Fred,

    I went to Yahoo Finance and found the following public information:
    – IBM top officers’ salaries: $6.5M, $1.7M, $1.5M
    CEO: $6.5M; 200K shares owned = $30M
    number of employees: 400,000
    – GE top officers’ salaries: $3.3M, $4.2M, $4.6M
    CEO: $3.3M; 1.6M shared ownder = $32M
    number of employees: 290,000
    – Goldman Sachs top officers’ salaries: $600K, $600K, $600K
    CEO: $600K; 1.8M shares owned = $240M
    number of employees: 36,000

    Where do you find $90K CEO salaries in Forbes? If so, Steve Forbes is misleading the public. See below on how sometimes showing a low salary means the stock compensation is great (and relatively hidden).

    IBM and GE have hundreds of thousands of employees. The salaries and long term compensation (about $30M in shares) of the officers are well justified. These companies are producing things. On the other hand look at Goldman Sachs. The salaries are $600K for each officer. They did not bother to differentiate them as it is so meaningless (to make the public think they do not make much). The shares owned by the CEO are worth: $240M (two hundred and forty million dollars). This is 10 times that for CEO’s of IBM and GE while employing almost 10 times fewer employees. Goldman just shuffles money around.

    How can you target professors who make State of California salaries? Granted they are in the top 20% but it is well deserved. They study taboo subjects such as stagnant middle class incomes and its impact on the economy. Without them we are at the mercy of the predators.

    As you say the average income for tea partiers is not much. How come they are siding with Steve Forbes and Republicans who are misguiding them with false information? The greedy leading the gullible.

    Whether we tax stock, option trades or the resulting income, we need to tax the upper income brackets (this includes me) more and equalize the playing field.

    We also need to bring back the usury laws rescinded during 1980’s (because of high inflation) so the poor do not pay 20% interest (they are the ones who need credit most). Why is Citibank credit cards are registered in South Dakota: they had no usury laws.

    I think you and Professor Reick are in violent agreement. I am hoping you will become a democrat for the next election cycle and lead the tea party folk to the real problem.

    I agree with you that the rich are trying to control Democrats and Republicans alike in Congress through lobbyists. However, the venue for making change right now is with Democrats. You do not need to be a lifelong Democrat just long enough to right the wrongs so we all become prosperous again.

    Best Regards,

  3. Marketing books talk about positioning. For example to sell a new kind of tooth paste you need to position it with respect to a well-known toothpaste. It should mostly be like this one but different in one respect. Tom’s of Maine came across well as it was in the standard tube but with different content.

    President Johnson was very effective with the Great Society programs because other than having the heart of a democrat he looked like a Republican. He was from the South, he was tall, wore a large hat from time to time and had a southern twang.

    Democrats need such a face today. It is easy to dismiss Obama: Harvard guy, black guy. Likewise it is easy to dismiss Pelosi: she is from San Francisco. Someone like Warren Buffett would be a good face democrats. Kerry, Gore were stuffy.

    Look how Huckabee talks about Obama: I doubt they ever invited him to a ball game in high school.

    The party needs to create the emotional connection to the middle class. Perhaps it doeos not have that connection any longer.

    Fred, in these posts, is an example. He and Prof. Reich propose taxing wealth but he does not see this point. He sees how Reich is a real aristocrat.

  4. Betty , These claims and anger come also from dailyKos, and othe leftwing idea websites. I fail to see you point. This is ‘A Tax Loophole’ for Wall Street riches’, and matters less if republican or if democrats are the targets, it is a tax base of $10 trillion a year. I find it hard for someone complaining that the rich are getting breaks ( notice obama did not dispute continuing the Bush tax-breaks, no one twisted his arm, his lone decision, and I hear no decent from the Democratic Base!) so that this tax the rich on Wall Street is, as you say “not a very effective way to argue your point.” On forbes website you can get a list of all the US corporation heads salaries and incentives, most make about $90,000 a year ( few make huge salaries) . This confirms the claim that Tier I instatution professors are in the top 20% of the wealthiest Americans. There is no law saying they cannot write checks to the government tax system. Get up and do it today, and stop blaming the mostly poor republicans. The republicans, now, especially some academic collegues are understanding are split now — the tea party is comprised mostly of poor who make less than $40,000 and are not in love with rich republicans. There is no longer a monolithic republican party. It has been a lie throughout history that the left were the suppressed poor and the right were the wealthy suppressors. That is Marxist ( meaning these people changed what Karl Marx correctly claimed) , the left were in history always the suppressors. That hurts terribly, but is a fact. That is why the left always covers up the truth. If one looks on contribution government websites, the left have contributed more money in the last two decades than the right — who are becoming more poor as the rich are collectivly the wealthy leftist contributing corporations. You can deny what I say, but this is my scientific reserch not false facts. Your post sounds emotional. I offered a huge tax solution that you dispised because it was promulgated by a lefty over 40 years ago. Pitty, things at a University should be about solving solutions to our problems in debate not demonizing me. But that is a typical leftist responce.

  5. @Fred:

    Quoting a study that is 40 years old is not a very effective way to argue your point. Also, it amuses me that you’re accusing the Democrats of being the “Real Aristocracy,” and calling Republicans “the common people.” This is a misconception held by many gullible conservatives who swallow up the GOP’s lies and deceitful arguments that detract from the actual truth: that the wealthiest Americans don’t care about the middle and lower classes. Politicians are wealthy. They have to be to succeed in their jobs. Based on policies that they are backing, the wealthy Republican politicians don’t seem to care about the “poor republican farmer” at all. They want tax breaks for the wealthy, for themselves, convincing the poor and middle class Americans that the money the rich save in taxes will be reinvested into the economy. This was proven to be false when Reagan supported this “trickle-down theory”, and it’s still false.

    Dr. Reich isn’t saying that we need to take power and money away from the “poor republican farmer.” If you had actually read his blog, you’d notice that he says nothing about taking things away from the poor. He is advocating FOR the poor, for those farmers and those poor and middle class Americans who work long days just to sustain themselves and their families. He is chastising the tiny wealthy minority for abusing the middle and lower classes, and for making the gap between the wealthiest and the poorest larger than ever before.

    I believe in political debate and the sharing of ideas and even disagreement about topics. I believe it makes people think harder about what’s really important to them. But, everything you’ve stated is founded on outdated information and inaccuracies. Before you try to debate an issue, please do your best to learn about it.

  6. Obama has gone way too far to meet the right in the middle. There is a swing that takes place between right and left over time and the country will come back to the left side of the spectrum. Democrats need to stand firm on their values and not cave to the right.

    John McGraw

  7. Amazing that this blog proves that the vast majority of people marginalize climate change threats against the long-term survival of humanity in favor of enabling short-term goals that produce Us/Them destruction.

    First and foremost, America and the world desperately need superior leadership to replace the culture of failure and/or destructive leadership we have today in every single one of our institutions.

    Far too many people fail to comprehend that the long-term is getting more short-term every day as climate change tipping points continue to topple around the world because we have absolutely no leadership to implement solutions we must have to protect our civilization from disaster in this century.

  8. Okay, but what the dems also need to do is come up with strategies to spend this money in ways that move the country forward, not just maintain existing entitlements. Tried to hire someone for a professional or technical position lately? Surprised by the lack of good candidates, given our high unemployment (and underemployment) rate? What is scary about the future is the collapse of American education, to a point where employers are increasingly driven to go abroad not just for cheap manual labor but also for knowledge workers. Smart entrepreneurs get this – if the dems made an effort – and I mean a real effort, not just a few words in a presidential speech – to build their education-investment strategy around this crisis, rather than around empowering public-sector unions, maybe we’d get somewhere. We’d certainly have the field to ourselves, since stupidity is a cornerstone of the republican electoral srtategy.


    Suppose that every day, ten men go out for beer and the bill for all ten comes to $100…

    If they paid their bill the way we pay our taxes, it would go something like this…

    The first four men (the poorest) would pay nothing.
    The fifth would pay $1.
    The sixth would pay $3.
    The seventh would pay $7..
    The eighth would pay $12.
    The ninth would pay $18.
    The tenth man (the richest) would pay $59.

    So, that’s what they decided to do..

    The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the ten men would now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?

    They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

    So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

    And so the fifth man, like the first four, now paid nothing (100% saving).
    The sixth now paid $2 instead of $3 (33% saving).
    The seventh now paid $5 instead of $7 (28% saving).
    The eighth now paid $9 instead of $12 (25% saving).
    The ninth now paid $14 instead of $18 (22% saving).
    The tenth now paid $49 instead of $59 (16% saving).

    Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

    “I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”

    “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

    “That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

    “Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

    The nine men surrounded the tenth and beat him up.

    The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

    And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

    • Blair,

      The part of the story you’re leaving out is that as a result of the price reduction, men 1-5 spend more time and money getting to the bar since the bus fare has to go up and the bus frequency down

      AND men 6-8 can’t take a second vacation anymore because their spouses and children (who worked at the bar for pin money) are getting fewer hours in the work schedule

      AND man 9 gets fewer medical check-ups since he’s had to cover more of his medical plan’s costs, so his cirrhosis is diagnosed a little later than it might have been

      AND man 10 already spends as much on beer as he possibly cares to, so he takes his new savings and has the urinal in his executive washroom gilded. He uses the leftover savings to support political candidates who oppose urinal regulation. Net effect to society of the reduction in taxes? Rich man gets a golden toilet and everyone else becomes a little dampened.

  10. Nobody has rescued this nation since FDR, and we most certainly need another like him and our founding fathers to provide leadership once again for America, along with other world leaders like Churchill to meet in conferences like FDR and Churchill did to save civilization during WWII.

    Indeed, the threats to survival that humanity is experiencing today are much greater than those we defeated in the Revolutionary War and WWII.

    It is also imperative that leading intellectuals from the world’s universities join together to support the world’s political leaders in a campaign to save humanity with resolution and urgency.

    The human race desperately needs preeminent political and intellectual leaders that shall find a way to save us from the culture that has been producing worldwide destruction for far too long.

  11. Your arguments are both correct and nothing new.

    The problem isn’t the inherent correctness of the arguments, it is the packaging and selling of the ideas to the ideas to the general voting public. The right has a lot of thinks tanks coming up with ways to sell their side- not to mention an effective “news” station to promote it. That is what is needed, a better way to package and sell our point of view.

  12. Yo Robert Reich,, Yale student in the 1970s did a study that if one
    taxes’ Wall Street trades ( Such as flash trades, multi-per-day, etc) that will put $10 TRillion INTO THE ECONOMY EACH YEAR. sorry for the caps, but I do not see one liberal ( i’m not Marx claimed they are evil, and they are!) promote this money making scheme. Wall street gets bailed out by LIBERAL OBAMA and you do not complain. They have multi-million dollar homes, and more in their bank accounts, but since they vote Liberals you do not complain. You blame some poor republican farmer living off the land. Typical retarded stuff. This student ( perhaps a professor) then intended $5 trillion goes each year to the states, and $5 trillion goes to the feds. Can you advocate that or are you tied to the REAL ARISTOCRACY — The Democratic Party — the party of the international corporatinos, phrama International, and secret military projects. Grow up and join the common people, the republicans.

  13. Dear Professor Reich,
    – Please keep making the point about the weakening of the middle class. It seems that it is taking effect. One hears it from multiple quarters now.
    – However, the middle class is not yet recognizing this. Perhaps they will or perhaps they have some cognitive blocks why they will not. Their understanding is key as they are the majority.
    – I read in a blog that the GOP has two kinds of vote: the greedy and the gullible. How true. Each time the greedy gets the gullible excited with causes like guns, abortion, gay rights, big government. Each time the middle class eats it up.
    – Just because something is so does not mean people will readily recognize it. I would like to see more understanding of this phenomenon in this case.
    – I think the democrats are being careful because of this. Being right does not necessarily win elections so they can do what is needed. The republicans are controlling the dialogue. The mainstream is basically not educated enough to see through the morass of information and disinformation.
    – You last book is great! Thanks!

  14. This blog certainly sums it up. The democrats aren’t being effective because they’re dodging the ugly truth. The Republicans are using the stagnation as an excuse to cut more from those who can’t fight back to feed more greedy rich. I am glad I’m not alone in my frustration, and I’m not even a liberal, but as a former Cal grad going through hard times, I can’t stand not having a voice. So I try to speak when I can.

  15. Actually, President Obama mentioned the middle class/union-struggle in ‘secret code’ at the recent Governors conference.

    God forbid he should acknowledge, show support or fulfill a campaign promise, for those who voted for him.

    I agree with Sharon, who in Washington will listen; if as Nicholas pointed out the democratic party base are the ‘rich’?

  16. The paramount political and intellectual issue that shall determine whether the human race will have acceptable long-term quality of life is climate change.

    Some populations have already suffered hellacious consequences due to climate changes we have already experienced, changes that are continuously getting more out of control with no significant worldwide solutions being implemented to date.

    Nobody even knows how soon humanity will drive itself into unacceptable living conditions, although some populations have passed that point already. But considering our failures to control climate changes to date, there can be no doubt that life on earth shall at least become unacceptable for all of humanity in this century if we don’t do the right things today.

    I no longer care about what party a politician belongs to, as long as they are dedicated to making their highest priority the immediate implementation of solutions to protect acceptable quality of life for future generations.

  17. Dear Professor Reich,

    Is anyone in Washington — the White House or Capitol Hill — listening to you??? Thank you again for being a voice of reason and sanity, albeit it seems unheard in the wilderness.

  18. The Democrats and President Obama remain “relevant” and viable by also catering to the rich. The rich are also part of the base of the Democratic party. As far as I can tell (as a New York Times reader), Obama has said almost nothing in support of the public unions that are under attack in the midwest.

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