The Smart Money: The (un)civil war among the middle classes - Part Two

Posted Tuesday, May 21, 2013 in Analysis

The Smart Money: The (un)civil war among the middle classes - Part Two

by Gina Hamilton

Last week we looked at some of the ways the middle classes are turning on one another instead of being supportive of their shared struggles.  This week, we'll examine how political spin managed to turn people with more in common than they think against one another.

The 'trickle down' spin

Also known as supply-side economics, this was a Reagan-era notion that tax breaks to the wealthy and to businesses would eventually result in a greater Gross Domestic Product (GDP) nationally, which would be good for everyone.

The problem is that it didn't work. Most tax breaks for the wealthy remained unspent or uninvested in new business - the average American earning more than $150,000 spends less than 80 percent of his income, compared to 94 percent of income for a poor American and 86 percent for a middle class American, and every time the wealthy American gets a tax break, according to a recent study done by Moody's, he saves ever more. Compared to the middle classes, who tend to use tax breaks to pay off debt at higher rates (thus freeing more funds for future lending), or the poor, who spend nearly every dime that flows through their hands (thus stimulating their local economies), supply-side based tax breaks clearly don't do what their proponents would have us believe.

Supply-side had been tried before with even less success. In the 1890s, it was called, somewhat earthily, 'horse and sparrow' economics, from the notion that if you feed the horses enough oats, there is eventually something left over in the road for the sparrows (no prizes for guessing who the sparrows are!). This was an economic period defined chiefly by the robber barons and the great panic of 1896, and the attempted suppression of labor unions across the country. The problem was that the wealth simply wasn't 'trickling down'. The more money the wealthy were able to keep, they kept to enrich themselves and their families.

(Some of the well-to-do had a social conscience of sorts, of course. The great Carnegie libraries across the country, for instance, were paid for by Andrew Carnegie, who financed more than 2500 public libraries in the U.S. and other places in the world. Others donated their wealth or land to the communities after they died, or supported arts organizations, charitable institutions, hospitals, or universities (usually with their names emblazoned on the lintels!) But all too often, the funds used to make these valuable donations were funds that were not spent in making workplaces safer, providing health care or pensions to workers, or paying living wages to employees.)

When it was tried again, in the 1980s, it was coupled with a compression of tax brackets that had the effect of making the wealthy, middle class, and poor pay taxes that were much closer to the same rate than they previously had. What followed were boom and bust cycles in many key economic sectors that not only impacted the stock market, but Main Street concerns such as the housing market. At the same time, salaries and other benefits for executives of major corporations skyrocketed. By 2005, the average CEO in the U.S. earned 262 times what the average worker in his firm earned, earning more in a single workday than the average worker earned all year.

Since 2005, the wage disparity between rich and middle class has escalated. In the Fortune 500, that ratio has grown to an average of 375 times the average salary in the same company. The CEO of Walmart makes his average worker's annual income once every hour.

And when was the last time you saw a Walmart library, or a Walmart Center for the Performing Arts, or even a Walmart Economics Chair at a local community college? Giving back, even in a relatively minor way, belonged to another era, an era when the kind of greed that built America's huge industrial complex - its railroads, its oil companies, its automobile manufacturing facilities, its steel mills, its major banks - was still considered just a wee bit shameful, something that had to be atoned for by those who reaped its benefits. There is a term for it ... noblesse oblige, the idea that with wealth, power or privilege comes social responsibilities. (Some still accept their responsibility toward those who work for them or purchase their products or the general public - think about the actions of people like Warren Buffett and Bill Gates. But they are few and far between.)

The real question is, how is it that corporations and lobbyists for corporations and the wealthy CEOs who run them managed to convince so many of the middle class in America that giving them the lion's share of America's tax cuts was somehow a good idea?

That's where spin comes in. It is done with a judicious use of language.

The term 'tax relief' is a case in point. Tax relief sounds great, and conjures up images of middle class people struggling to make ends meet to pay 'Washington' (another frame - politicians don't call it 'the government', which has, among the negative connotations, images of national parks and firefighters and soldiers which are universally thought to be good things). However, if people were told the truth, which is that 40 percent of 'tax relief' goes to 1 percent of Americans (those making $500,000 or more), they might see it for what it truly is - a wealth redistribution from the poor and middle classes to the wealthiest Americans who can best afford to pay more, not less, in tax.

If you aren't in favor of 'tax relief' for all, however, you might just be a 'socialist'. Many GOP senators and congressmen who should know better are bandying this term around with some abandon. That's not surprising; accusing union organizers and other supporters of labor movements of socialism ... or even communism ... is a time-honored pastime. In the 40s and 50s, it was a good way to discredit a union (Prior to World War II, many labor leaders had in fact been members of the communist party, but an equal number were likely to be members of the fascist party - the war changed everything), and some labor leaders were even summoned before the House to account for their 'socialist' activities at the height of the McCarthy era.

Where's the shared sacrifice?

Congress pushed through the sequester in an attempt to force a bipartisan discussion on lowering the public debt in 2011.  The goal -- to achieve a united attempt to decrease the national debt and reduce the deficit, didn't work, and likely was never intended to by the GOP.  It was widely held that the cuts were going to be too painful for Congress to stand by idly and allow them to take effect; yet stand by they did.

However, when the cuts became painful for members of Congress, they pushed through exemptions ... for defense workers, for air traffic controllers, for Congressional salaries ... and made it less likely that they would be willing to work to reverse the exemptions for the little people, who are suffering from unemployment cuts, cuts to public housing and fuel oil supports, cuts to National Parks, cuts to Head Start programs, cuts to block grants to the states that do in fact 'trickle down' to municipalities and prevent ruinous property tax increases.

Who suffers in the end? The poor and the middle classes, who must rely on public services.

A strong show of public support for public unions in Maine and other states in the last few years may be one telling sign that the middle class is finally getting the message that they are being marginalized by candidates and lawmakers who stand up only for those who have money.  Romney's '47 percent' debacle - he apparently forgot that dishwashers and cooks and waiters are likely to be part of the '47 percent', and that they have ears (and cell phones) -  may have cost him the election in 2012. The pendulum may be swinging back toward an era when middle class Americans realize that they must hang together or, in the words of Benjamin Franklin, "assuredly hang separately".  The middle class has the power and the numbers to change the course of the economic malaise the country is in, but only if we realize that our best hope lies in standing up for things that are in our collective best interest and insisting that those we elect meet our expectations.

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