- Since the Great Depression, there has been a strong national
political consensus supporting policies that help middle-class families
cope with the multiple risks in our market economy. These include the risks
of illness, destitution in old age, hazards from defective products, polluted
natural resources, industrial accidents, corporate frauds, high unemployment,
and other assaults largely beyond the individual's control. Such policies
are not, by and large, targeted redistributions to the poor but protections
for the broad middle class. Many government activities reflect this concern,
including social investments financed by a progressive tax code and a wide
array of regulatory protections, almost all the result of necessary responses
to past abuses by the market. Such essential services as electricity, water,
telephone, and, for that matter, private insurance of various kinds have
also been secured by government investment and regulation. Without these
diverse government activities, ordinary middle-class families would be
extremely vulnerable. With them, America both preserves the dynamism of
a market system and defends innocent individuals from avoidable economic
calamities.
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- Today, the radicals in charge in Washington are targeting
regulations that protect middle-class consumers from financial swindles,
monopoly pricing, unsafe food and drugs, and environmental hazards. They
are undermining social outlays that serve mostly the middle class, such
as unemployment insurance, college-loan programs, Medicare, Social Security,
public education, and much more. They have warped our fiscal priorities
in ways that will affect the nation for decades. Shifts in the tax code
further shrink the share of taxes paid by the highest-income groups and
corporations and thus transfer the burden to the wages of working Americans.
Because the shifts also add to the nation's debt, they lock in high taxes
for future generations of middle-class workers.
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- The right, of course, applies labels to its "reforms"
that sound very appealing: ending "death taxes" and double taxation;
offering medical savings accounts, new personal investment accounts, and
school vouchers; enacting tort "reform"; reducing the burden
of regulation. Yet, like the tax cuts, the effect in each case is to overturn
practices that, by and large, have greatly benefited Americans across the
income spectrum.
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- America's embrace of these social protections has been
far from absolute. We tolerate more risk than our counterparts in other
advanced societies and accept the very unequal -- indeed, unfair -- allocation
of society's burdens and rewards. Even so, our mostly minimal social compact
has produced a broad sense that the system "works for me."
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- Despite that fact that most American workers today feel
an increase in personal risk, the right has been remarkably successful
in convincing voters, at least as an abstraction, that social outlays tend
to be wasteful, that regulation impinges on freedom or raises costs, and
that tax cuts for the wealthy energize the economy (and thus are necessary
and even fair). Underpinning many of these conservative economic arguments
for dilution of established public-sector roles is the moral-claim notion
that families will wind up better off once they have the "opportunity"
to respond, without government mucking up the works, to more purely market-derived
incentives (in other words, people thrive on more risk).
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- A key questions in 2004 is whether most citizens will
accept the idea that the solution to our problems is to expose American
families to more risk. It certainly seems a curious priority in the current
environment, in which personal risk is exploding and security evaporating.
Will voters embrace the theory or respond to the evidence in their own
lives that most middle-class households have lots of market "incentives"
already? Will they find the prospect of greater risk a cause for concern,
rather than a gift from the right?
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- Here are a few examples of practical application of these
theories, which middle-class citizens might reflect upon:
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- Budget Priorities. The president's proposed budget would
cut bedrock programs that benefit the middle class. By fiscal year 2009,
funding levels for these programs adjusted for inflation would be reduced
by 12 percent compared with current law. Those reductions include: discretionary
health programs, including support for the National Institutes of Health,
the Centers for Disease Control and Prevention, and the Food and Drug Administration
cut by 11 percent or $5.6 billion; education, training, and employment
programs cut by 7.3 percent or $6.2 billion; environmental protection and
natural-resource management cut by 20 percent or $6.8 billion; veterans'
medical benefits and other services cut by 17 percent or $5.7 billion.
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- Jobs and Earnings. Over the past three years, with almost
3 million jobs lost, the main "remedy" offered by the administration
has been to cut taxes on corporations and wealthy individuals. Wage increases
have fallen below the rate of inflation, and little tax relief has trickled
down to average workers. The administration has resisted policies that
might have stimulated middle-class employment directly, such as public
investment, energy independence, or aid to state and local governments.
And, despite policies that have resulted in the sharp decline of the dollar
(which may push up interest rates in the future and is increasing gasoline
and heating oil prices now), manufacturing and exports have not been stimulated
at anything like the rate needed to make up for losses during the 2001
recession.
-
- Savings and Debt. Household debt levels among the middle
class have risen to unprecedented levels (more than 80 percent of the gross
domestic product, compared with 50 percent in 1980), while savings rates
are at their all-time nadir. Yet bankruptcy protections have been curtailed,
credit-card companies remain free to charge usurious rates while pursuing
unscrupulous marketing practices, and government savings incentives remain
targeted primarily at the wealthiest families, despite overwhelming evidence
that such incentives simply cut taxes on money that the relatively well-off
would have set aside anyway.
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- Retirement Security. Pension coverage has shifted risk
to workers. Once prevalent defined-benefit plans, in which companies paid
their retirees based on past earnings and tenure, have largely given way
to 401(k)s and other defined-contribution plans. What you end up with depends
on how the market is doing when you retire and, as ex-Enron employees bemoan,
how your particular company's stock fares. The administration solution
to this deterioration has been largely rhetorical, with a dangerous element
of wishing away the problem of pension security by allowing companies to
"assume" unrealistically higher returns for pension funds rather
than face up to the need for larger contributions.
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- Tax Shifts. The tax burden continues to shift away from
investment income, wealth, and corporate profits and onto wages. Even before
the Bush tax cuts, only about 50 percent of income was subject to some
sort of federal tax. If, as seems inevitable, the Bush tax cuts reduce
the tax base still further, the share of total revenues to be paid by those
workers in the broad middle class -- those whose income is composed largely
of wages -- is sure to increase. The recent tax cuts, for example, do little
for most middle-class families. In 2006, 88 percent of Americans will receive
$100 or less from the 2003 tax cuts, while the top 1 percent of Americans
are slated to receive on average $96,000 over the next four years. And,
if the trend toward inequality that has been the main feature of U.S. income
and wealth statistics for the last three decades continues, the pressures
on this slice of the potential tax base will only intensify. Indeed, there
is ample support among many conservative leaders for an outright repeal
of the progressive income tax.
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- Health Coverage. Health security is headed in the wrong
direction: More Americans lack health insurance now than since the advent
of Medicare and Medicaid. Almost one-fifth of households earning between
$25,000 and $50,000 a year are uninsured. Insurance costs for private employers
continue to grow at job-killing rates.
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- American Dreams. For middle-class families, the costs
of rearing and educating children -- from preschool through college --
are consuming a much larger share of their incomes than in the past. Nearly
two-thirds of America's 3- and 4-year-olds attend preschool, which can
cost well over $5,000 a year, compared with just 5 percent in the mid-1960s.
Families with college-age children confront tuitions that have soared far
beyond the inflation rate. Yet the administration has demonstrated no interest
in easing the growing burdens on families with children.
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- Evidence is mounting that realizing the American dream
has become an increasingly rare experience. Studies show very strong correlations
between the earnings levels of fathers and sons over time, with relatively
few children moving from the middle of the income spectrum to the top.
Because receiving a college degree is more essential than ever to climbing
the economic ladder, the soaring financial costs of higher education threaten
to further undermine the nation's heritage as the land of opportunity.
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- More examples appear in the seven articles that follow
in this special report. Jarringly, all this is happening while the nation
is experiencing other economic and social changes that ought to lead a
movement in the direction not of less but of more protection against risks.
In the past quarter-century, American capitalism has been deregulated in
a manner that has already shifted substantial risks to working families.
Breadwinners face increased risks of losing their jobs and having to settle
for employment at reduced wages. The middle class is at greater risk of
losing high-quality health insurance. Social Security has already been
cut, relative to lifetime wages, and pension risks have already been substantially
shifted to workers.
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- It is important to distinguish between risks that are
incurred voluntarily and those beyond the control of a prudent individual.
The former includes the risk of starting a business, or investing in a
stock, or mountain biking down Fifth Avenue. If something unfortunate happens,
well, too bad -- that sort of risk was optional. The latter, involuntary
risks include the risk that your corporate employer will outsource your
job, or that your fish dinner will contain toxic mercury, or that your
health plan will deny your doctor the right to provide necessary treatment,
or that your company pension will collapse. It is the latter sort of risk
that has dramatically increased in recent years.
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- This shift did not happen because of inevitable technological
changes. It was a deliberate political choice, reflecting the political
dominance of believers in laissez-fare. Some economists believe that a
market economy works better when free of all social constraints. This view
is debatable. But if this is indeed an era in which individuals need to
change jobs and upgrade skills many times during the course of working
life, and mothers as well as fathers are in the paid labor force, we should
be providing more social cushions against risk beyond the individual's
control, not fewer.
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- We should also be bolstering protections and opportunities
for working families, offering tax subsidies for preschool costs and public
pre-kindergarten programs, replenishing student aid, and adding incentives
to increase the personal savings of middle-class families. We should deliver
on the perennial promise to provide universal health insurance. We should
raise our sights when it comes to trade-adjustment and job-dislocation
programs, providing realistic levels of support for displaced workers and
enacting increased coverage for unemployment insurance.
-
- Not surprisingly, polls suggest that the general public
has a growing sense of unease about what is going on. But while there is
increased political discourse about the effects of trade and globalization,
there is still little focus on the necessary revisions of domestic policies
and programs. The lack of attention is partly the result of the collapse
of a previously strong bipartisan consensus on these issues. If the division
occurs roughly along party lines, the press portrays it as mere partisan
bickering or as rhetorical posturing, rather than as matters affecting
the livelihood and well-being of tens of millions of American families.
-
- What is at stake could be clarified by the heightened
attention during an election-year debate and by more thoughtful press coverage
of issues. Unfortunately, most reporting so far seems to be based on the
notion that, because the extreme right has taken over the Republican Party,
the "opposition" must have undergone a similar polarization --
with the center-left having been co-opted by extreme advocates of the poor
or populists. Few political characterizations could be further from the
truth. Most Democrats and the handful of remaining GOP moderates in office
represent nothing more radical than the traditional mainstream American
view on these issues.
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- Whatever one predicts for this year's political contests,
the current situation is delicately balanced, depending on the persistence
of a set of paradoxical beliefs among many citizens. To wit: While many
working people recognize that Democrats and moderate Republicans align
closer to them on their economic interests, they often simultaneously embrace
the belief that conservatives are closest to them in terms of their "values."
Perhaps this confusion is the result of misunderstanding self-interest;
perhaps it is that other concerns trump economic considerations. Whatever
the reason, if the real story of what is happening to middle-class values
is become widely understood, most Americans will insist on a change of
course.
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- Looking back to 2000, many voters apparently thought
that there was not much difference between the two major candidates, especially
on the issues of greatest importance to the middle class. Al Gore had been
leading the effort to shrink the federal government and had been part of
an administration that "reformed welfare" in a way that was congenial
to moderates and conservatives, while George W. Bush, son and grandson
of "moderate" Republicans, talked often of "family values"
and offered the reassurance of a "compassionate" version of conservatism.
Given any reasonable public understanding of the actual conservative agenda,
it may be hard to make that mistake again.
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- Therefore, while communicating the current risk to middle-class
values may not be easy, it is centrally important. Powerful forces are
arrayed on the side of the new conservatives, and much confusion exists
about the effect of their program on "family values." That confusion
will clear and a decisive change in direction will occur when enough people
come to understand that the things they hold dear -- indeed, the expectations
that they have about life for working families in America -- are at risk
today.
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- Copyright © 2004 by The American Prospect, Inc.
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