The president will have to devote a big part of his State of the Union speech to the economy, but which economy? Corporate profits are up but jobs and wages remain in the doldrums. People with lots of financial assets, or who are deemed "talent" by large corporations, are enjoying a solid recovery. But most Americans continue to struggle.
In order for the public to understand what must be done, the president has to be clear about what has happened and why. Corporations are profiting from sales of their foreign operations, especially in China and India. Here at home, they're catering to rich Americans. But an important key to their profits is their reduced costs, especially payrolls. The result has been fewer jobs and lower pay.
The Great Recession accelerated trends starting three decades ago -- outsourcing abroad, automating work, converting full-time jobs to temps and contracts, undermining unions, and getting wage and benefit concessions from remaining workers. The Internet and software have made all this easier.
He should point out that the U.S. economy is now twice as large as it was in 1980 but the real median wage has barely budged. Most of the benefits of economic growth have gone to the top. In the late 1970s, the richest 1 percent of Americans got about 9 percent of total income. By the start of the Great Recession they received more than 23 percent. Wealth is even more concentrated.
This is the heart of our problem. Most Americans no longer have the purchasing power to get the economy moving again. Once the debt bubble burst, they were stranded.
The president should make it clear corporations aren't to blame. After all, they're designed to make profits. Nor is it the fault of the rich who have played by the rules. The problem is the rules need fixing. He should stress that a future with no jobs or lousy jobs for most Americans is not sustainable - not even for American corporations, whose long-term profitability depends on the revival of broad-based domestic demand. (Watch out for the upcoming "correction.")
The solution is to give average Americans a better economic deal.
For starters, he should propose to expand the Earned Income Tax Credit (essentially, a wage subsidy) all the way up through the middle class. And he should make the tax system more progressive: The rate on the first $50,000 to $90,000 of income should be cut to 10 percent; the next $90,000 to $150,000, 20 percent; and the next $150,000 to $250,000, 30 percent. Make up the revenue by increasing taxes on the next $250,000 to $500,000, to 40 percent; from $500,000 to $5 million, to 50 percent; and anything over $5 million, 60 percent. Tax capital gains the same as ordinary income.
In addition, he should call for strengthening unions by increasing penalties on employers who illegally deter them.
He will have to call for reducing the long-term budget deficit, but must make sure to distinguish between public investments that build future productivity (education, infrastructure, and basic R&D) and expenditures that improve our lives or keep us safe today. The former -- essentially the nation's "capital expenditures" -- shouldn't be cut at all. Indeed, they should be substantially increased. A "capital budget" separate from the regular federal budget would help draw this fundamental distinction.
Finally, he should recommend that Congress make college affordable by allowing federal loans to be repaid as 10 percent of earnings for the first 10 years of full-time employment.
Importantly, he should make it clear this isn't redistribution. These measures would be good for everyone. Rich Americans will do better with smaller share of a rapidly-growing economy than a large share of one that remains in a deep hole.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
I agree with Mr. Reich that the rules need fixing. I don't believe the President will say anything like that however. Corporations have no conscience. They don't care about the well being of Americans. If they can make more profits by selling to China and India, they are perfectly happy doing that. The only thing that will change that is "fixing" the rules. But neither our President or Congress will do that. We need better representation and we're not going to get it until we get a more informed electorate. And I don't see that happening anytime soon sorry to say.
I fear for my childrens future, but the rich don't care.
Robert, they don't wanna' hear that? They want the large share now!!! Thinking about the future is for someone else .......
BTW, Corporations ARE to blame - their purpose has become singular.
Today the situation calls for government to take action to help us transition and they are the only ones who can do it. But they can only act if the people demand it. It's time to stop listening to people who insist on old answers to new problems. The problem is ever increasing income disparity and erosion of the middle class which has been going on for years. Tax cuts and getting government out of the way of our freedoms wont do it. The article is on the right track.
If you tax capital gains as ordinary income you would need to index it for inflation or people would end up paying taxes on inflated values (sort of a government imposed confiscation).
It sounds like a terrific way of doing business. Now if someone could tell me what business uses this as a model.
FREE TRADE IS WORKING EXPORT MORE EXPORT MORE!
http://www.realzionistnews.com/?p=590
Ah - there is the problem. They think if they just keep making more they will have enough for themselves and their families for a lifetime - or a few lifetimes, then they can care for their hapless children, like Paris Hilton.
The problem they are failing to realize is it is probably much better to be a multi-millionaire in America than to be a billionaire in Somalia, Zimbabwe, Myanmar or Guatemala - and that is the direction they are taking this country.
I love the guy as maybe one of the last known liberals around, but he needs to understand that he (we) are all dinosaurs now.
the wealthy/corporate elite own ALL the politico's......they don't even attempt to hide that fact anymore.
if you were (was) in the old middle class....you are in for a big surprise real soon...but just blame it on the "other team" when your opening that dog food can in your cardboard box soon.
you'll feel a lot better.
to read your new posts. Take care.
Fanned & faved
Mike