Pushing on a string: Why tax breaks for the rich won’t help
On the eve of the Great Recession in 2007, income inequalities in America were at their highest levels since just before the Great Depression. 50 percent of all income went to the top 10 percent in 1928, leaving the bottom 90 percent to vie over the other half. That dropped to just over 30 percent during the Great Prosperity from 1942 to 1979, leaving nearly 70 percent of income for the remaining 90 percent of households, though overt racism barred many from sharing in that prosperity. The purchasing power of that broad and strong middle class became fuel for the roaring engine of our nation’s economy.
Then in 1980 our nation began to grow apart again – a divergence kicked off by financial deregulation and tax cuts for the wealthy. The growing divide was made worse by the assault on organized labor and the weakening of social safety nets. By 2007, income inequalities had reverted to pre-Depression levels. Mark Twain once said, “History doesn’t repeat itself, but it does rhyme.” And so it does.
With so much money in so few hands, high stakes speculation and wild bubble rides on Wall Street destabilized our economy. When the house of cards came down, it fell right on top of middle-class Americans. Communities were ravaged – with the stripping away of jobs, homes and savings – while the Wall Street gamblers sat comfortably in their velvety casino chairs lighting another cigar.
So far the economic recovery has been very one-sided. For low- and middle-income Americans, unemployment continues to be painfully high and millions of homes are in foreclosure. On the other hand, the Dow Jones has largely recovered since it bottomed out in early 2009, while the Wall Street crowd and Big Business execs are once again rolling in extravagant bonuses. For the wealthy, the recession’s storm has passed.
Despite this one-sided recovery, Congressional Republicans are telling us the problem with our economy is that rich people don’t have enough money. They want to make the Bush tax cuts for the wealthiest Americans permanent, adding $700 billion to our national debt over the next 10 years, paid for with more borrowed money. Ironically, these are the same people screaming about deficits. Of course, they claim that this is about creating jobs, but those tax breaks are more likely to sit in a bank or be invested overseas.
More importantly, pouring even more money into the pockets of the wealthy simply won’t get our economy moving again, especially in a recession as deep as this. Such a top down, “supply-side” strategy for economic growth is like pushing on a string. It’s futile and a wasteful use of borrowed money. It simply won’t work without a strong middle class to pull on the other end of that string, with the purchasing power to buy the goods and services produced.
It’s time to rebuild our economic engine by putting middle-class families first. Instead of expensive and wasteful tax breaks for the very rich, we should be focused on strengthening our middle class. Obama is right to target tax cuts to those earning less than $250,000. Even better, let’s use public dollars to create jobs directly for middle-class households while making long-term investments in our communities, such as building light rail for our cities and bullet trains in major corridors, installing green energy retrofits to public buildings, and putting more teachers in our schools.
Funny thing about pulling on a string. It moves even if there’s no one pushing on the other end. That’s the beauty of demand-side economic growth strategies. With a long-term focus on revitalizing our nation’s middle class with good-paying jobs, we can sow the seeds of another – more inclusive – Great Prosperity.
Brian Miller is executive director of United for a Fair Economy (UFE), a national organization that works to foster a more broadly shared prosperity. UFE is on-line at www.faireconomy.org
The Hill has removed its comment section, as there are many other forums for readers to participate in the conversation. We invite you to join the discussion on Facebook and Twitter.