A Path Forward for the Middle Class and the Country
POLICIES FOR THE NEXT ADMINISTRATION. PART 10: ECONOMIC INEQUALITY
This is the tenth in a series on the major policy ideas — from Left and Right — that should guide the next presidential administration's agenda. (For the opposing view, see Ryan Streeter, "Economic Participation Matters Most.")
Whether directly or indirectly, the fate of the middle class underlies most every aspect of the 2016 election. Given today’s economic realities, this is hardly a surprise.
Wages for the typical private-sector worker, adjusted for inflation, are still about where they were in the 1970s, even as the costs of core middle-class goods such as housing, healthcare, child care, and higher education have grown rapidly. Economic output per person has nearly doubled over the past four decades, but the vast majority of these gains have gone to those at the very top. In fact, the share of the nation’s income going to the top 1 percent is near-record levels, while the share received by the middle class — the middle 60 percent — is about the lowest ever since the government began tracking this data in the late 1960s. In 1973, the typical CEO of the top publicly traded companies made around $1.1 million, or about 22 times what the typical worker made. Today, the average CEO makes $15.5 million, or about 275 times what the typical worker makes.
President Obama’s economic policies are starting to push the country in the right direction and mitigate extreme inequality. For instance, incomes for the middle class grew by a record amount in 2015. But to strengthen and grow the middle class further, the United States needs many more years of gains like these — which is why the 2016 presidential candidates have focused on the longstanding troubles of the middle class and the country’s extreme levels of inequality.
Hillary Clinton puts the economic condition of the middle class at the heart of her campaign by arguing that creating “good-paying jobs with rising incomes … is the defining economic challenge of our time.” Similarly, the front page of Donald Trump’s campaign website proclaims that he is going to “make America great again” by creating “opportunities for everyone, not just a select few.”
Clinton’s arguments and policies to strengthen the middle class largely build and expand on those of President Obama. To create “jobs that support a middle class life,” Clinton has called for infrastructure investments to boost growth, debt-free college, a higher minimum wage, paid family leave and tax reform to ensure the wealthiest Americans and the biggest corporations pay their fair share, among other policies.
But for Trump, his rhetoric is a shift for his party’s norm. Indeed, in 2012, Republican presidential nominee Mitt Romney said that he didn’t need to worry about “the 47 percent” who were falling behind, and Republican vice presidential candidate Paul Ryan insinuated that struggling families — “takers” — were to blame for their problems, not the economy. In contrast, Trump’s rhetoric often blames the “financial elite” and “powerful corporations.” (Trump also shamefully scapegoats immigrants as well as ethnic and religious minorities for economic and political problems.)
But, as much as Donald Trump has changed his party’s rhetoric about the middle class, his policies are largely the same trickle-down economics that have caused the middle class so much harm. In fact, Trump’s economic plans would likely make inequality worse.
Trickle-down is based on the premise that policies to increase economic inequality are good because they provide incentives for people to work hard and invest, which ultimately will benefit everyone, while policies to raise wages are harmful because they blunt such incentives. According to trickle-down logic, helping the rich is good, but directly helping the middle class is bad.
The core of Trump’s agenda — which some may not realize because of his rhetoric and his vocal opposition to existing trade deals — is trickle-down tax cuts for the rich and deregulation of business. The most detailed policy proposal he has released would cut taxes for the rich by far more than President George W. Bush did during his presidency, even as Trump’s proposals would raise taxes on some single-parent families. Trump has also stated that he would dismantle the Dodd-Frank banking regulations that help prevent another financial crisis, that he opposes a federal minimum wage increase, and that he would reverse a rule that would ensure that more workers get paid for overtime.
To strengthen and grow the middle class we need a sharp break from such trickle-down logic. Policies need to help the middle class directly rather than continuing to accept the charlatan’s logic that helping the rich will help the middle class. President Obama’s policies represent the beginning of that break and are starting to prove their worth by pulling the country out of the Great Recession and fostering large income gains this past year. Now, policymakers and the next administration should focus on four core areas to continue reversing the decades-long slump that trickle down policies inflicted on the middle class.
1. Raising wages. To ensure that wages once again increase in line with productivity and to ensure that workers benefit when their firms and CEOs do, we need to increase implementation of broad-based profit sharing, raise workplace standards, such as the minimum wage, and enable workers to bargain collectively. Academic research suggests that one third of the rise in inequality is due to the decline of collective bargaining over recent decades.
2. Increasing investments in public goods. The United States is failing to make investments in public goods that the middle class depends on and that fuel future growth, such as education and infrastructure. Investing in such goods could provide both a short- and a long-run boost to the middle class by creating quality jobs now and by preparing the workforce and networks of the future. Perhaps the most critical investments are in child care and early education, where class-based differences are greatest, but investments are also needed to make college affordable and roads, bridges, and public transit modern and plentiful.
3. Making the tax code more progressive. To generate the revenue necessary to pay for vital public investments as well as to stem extreme inequality, policymakers need to ensure that the wealthy pay their fair share. Policymakers can do so by getting rid of loopholes such as the carried interest deduction, which allows hedge fund managers to pay lower rates than their secretaries; prevent wealthy individuals from passing on massive estates to their heirs in ways that avoid taxation; and crack down on the variety of shenanigans that allow corporations to skirt taxation.
4. Equalizing political power. The wealthy will continue exploiting campaign finance and lobbying rules to game the system until we can make democracy work for the middle class. This can be achieved through policies that increase transparency, limit the amount of money spent, increase the value of low-dollar contributions, and encourage all citizens to participate with automatic voter registration and early voting.
Taking these and other steps to address the challenges of wage stagnation and extreme inequality matters not just for those who are struggling to make ends meet, but also for the future of our country. A vibrant economy and healthy democracy depend upon a strong and growing middle class. A flourishing middle class provides: a foundation of trust, enabling people to work together; engaged citizens to make government work properly; stable consumer demand to encourage businesses to invest; and the development of human capital from all citizens, fostering innovation. The policy priorities of the next administration will play a critical role in determining whether we continue to help the middle class grow or else reverse our progress.
David Madland is the author of Hollowed Out: Why The Economy Doesn’t Work Without a Strong Middle Class and a Senior Fellow at the Center for American Progress Action Fund.
Author's Recommended Reading:
David Madland, Hollowed Out: Why the Economy Doesn't Work without a Strong Middle Class (Berkeley: Univerity of California Press, 2015).
David Madland, "The Future of Worker Voice and Power," Center for American Progress (October 2016).
Carmel Martin, Andy Green, and Brendan Duke (eds.), Raising Wages and Rebuilding Wealth: A Roadmap for Middle-Class Economic Security, Center for American Progress (September 2016).
Joseph E. Stiglitz, "Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity," Roosevelt Institute (May 2015).
(Read the response by Ryan Streeter.)