Robert Reich begins: "More than thirty years ago, Ronald Reagan came to Washington intent on reducing taxes on the wealthy and shrinking every aspect of government except defense. The new tax deal embodies the essence of Reaganomics."
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Reaganomics Redux
17 December 10
The New Tax Deal: Reaganomics Redux
ore than thirty years ago, Ronald Reagan came to Washington intent on reducing taxes on the wealthy and shrinking every aspect of government except defense.
The new tax deal embodies the essence of Reaganomics.
It will not stimulate the economy.
A disproportionate share of the $858 billion deal will go to people in the top 1 percent who spend only a fraction of what they earn and save the rest. Their savings are sent around the world to wherever they will earn the highest return.
The only practical effect of adding $858 billion to the deficit will be to put more pressure on Democrats to reduce non-defense spending of all sorts, including Social Security and Medicare, as well as education and infrastructure.
It is nothing short of Ronald Reagan's (and David Stockman's) notorious "starve the beast" strategy.
In 2012, an election year, when congressional Democrats have less power than they do now, the pressure to extend the Bush tax cuts further will be overwhelming.
Worse yet, the deal adds to the underlying structural problem that caused the Great Recession in the first place.
Since Ronald Reagan was president, median hourly wages have barely budged, and America's vast working and middle classes have taken home a steadily smaller share of the nation's income (adjusted for inflation). The typical male worker today is earning less than the typical male worker thirty years ago.
Yet the richest 1 percent of Americans is now taking home a larger percentage of the nation's income than at any time since 1928. And we recall what happened in 1929.
Unless the vast majority of Americans has enough purchasing power to keep the economy going without going ever more deeply into debt, the economy will eventually go over a cliff.
That's what happened in 1929 and 2008.
By the late 1990s the middle and working classes could keep spending - and thereby keep the economy moving - only by adding debt. This strategy ended when the housing bubble burst in 2007.
Without their spending, there can be no buoyant recovery.
Yes, the pending tax bill will give America's middle and working classes slightly more cash next year. But only for one year. They won't spend it. They'll use it to help pay down their debts.
Will lower taxes on the rich spur them to create more jobs? Not a chance. Since 1980, Reagan's supply-siders have said lower taxes on the rich will trickle down to everyone else. Nothing could be further from the truth.
Look at history.
During the almost three decade spanning 1951 to 1980, when the top rate was between 70 and 92 percent, the average annual growth in the American economy was 3.7 percent.
Between 1983 and the start of the Great Recession, when the top rate ranged between 35 percent and 39 percent, average growth was 3 percent.
Supply siders are also fond of claming that Ronald Reagan's 1981 tax cuts caused the 1980s economic boom. There is no evidence to support this claim. In fact, that boom followed Reagan's 1982 tax increase. The 1990s boom likewise was not the result of a tax cut; most of it followed Bill Clinton's 1993 tax increase.
Nor did George W. Bush's tax cuts trickle down. Between 2002 and 2007 the median wage actually dropped. And Bush's record of job creation was pathetic relative to Bill Clinton's, when taxes were higher. Under Clinton, America added 22 million net new jobs. Under Bush, barely 8 million.
So why are Democrats voting for Reaganomics?
They say they have no choice - either vote for this or watch taxes rise on everyone starting January 1.
That Democrats have allowed themselves to get into this fix is a testament to either their timidity, obtuseness, or dependence on the campaign contributions of those at the top.
Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.
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There is a new reality, folks. It is that Bernie Sanders, an Independent with mildly socialist leanings, was the only one who stood up to say this bill was wrong. He is the only one who stands out positively from the political crowd now.
Truly those who don't learn from the past, are doomed to repeat it. That's us as a nation.
What do we do to get a movement ?
Should someone start a website ?
May be a facebook page ?
Any body ?
So now what do we(individuals who care)do?
For the 1st time in my 68 years I have no vision of how we win. And I'm afraid I may not be alone.
I understood the error of my/our ways with the appointments of Summers-Geithner-Emmanuel. Downhill.
In addition to Bernie Sanders, my local congressman, John Garamendi, is a hero in my eyes. He "kept his head while all around him others were losing theirs." I'd love to be able to vote for him as a replacement to Obama in 2012.
We will grow demand and that will stimulate the economy. Hugh! I heard this before - remember Bush telling us to go out and buy some stuff.
My fervent hope is that Oblahblah will change parties and maybe a Democrat will run next cycle.
Anthony Weiner, Rep from NY voted "NO" and explained why on Rachael Maddow show 12-17-2010.
The House and Congress - Dems/Reps must be bought and paid for by "something" -- to pass that TAX DEAL.
When the Republicans talk - they all sound like they have smoked something. But the Americans believe the crap - WHY?
The DEMS shouldn't talk about the good/right/moral - begging -- they have to reply to the rhetoric of the Reps WITH FACTS (i.e. numbers, history, and stop talking like preachers)
For example they should say My friend on the other side of the isle: "You are entitled to your own opinion but not to your own facts" -- and then tell the FACTS- just like Reich did in this article.
Write and telephon your Congress people
Not true, Sanders was one of only 19 Senators to vote against the tax deal.
That's what stimulates the economy - buying stuff so that people who sell it and produce it can make money and keep their jobs. We still need to do other things to create new jobs and new demand, so unemployment help alone is certainly not enough.
There were 308 million people in the US in 2010. About 50% of them, 154 million people, live paycheck to paycheck and are forced by their situation to spend every dime of income they receive. There are 3.14 people in the average family, so there are about 49 million families in this country in that 50% (the ones that must spend every dime of all the income they receive). If, on average, those families get a $1,000 tax break they will spend it all and give the economy an immediate $49 BILLION boost. Taking the spending multiplier (7X to 8X) into account we can expect the total boost to the economy to be between $343 - $392 BILLION. And THAT is not nonsense. The same $49 billion given in tax cuts to the top 2% of income earners will AT BEST boost the economy by about $70 billion. And this analysis completely ignores the 48% of the population between these two groups who will spend something. Set "conservative" economic mythology aside and look at the FACTS and what should be done will be obvious. This information is not hidden. It is available to anyone who will look. So turn off Faux Neuz and look!!!
Bigger than any tax is energy prices. Even heavily subsidized, energy still an economic drag. The first job is to stop the energy leak. End the auto and its sprawl.
Unfortunately, our elections have come down to corporate sponsored beauty contests. I had thought Obama might be different. but I realize now that he and Hillary were both selected and approved by the corporatists and neither would have gotten as far had they not been.
Too much money to block it.
Another commentor suggested all the money would reach low/middle income families immediately. NOPE. Over the course of the work year. Those on UE don't get the bonus either. AFter 13 mos they will be in another pickle, still owing tons of money.
blocked Hilary from having a chance by denying her the votes from MI & FL.
I cannot vote for Obama in 2012.
I pray we can get enough support for her to send Obama to a place where he is most suited: The Court. Maybe Bill will like the new publicity with Obama enough to convince Hilary to get back into their former home. This time many Obama
backers will realize she is the light.
It was not all or nothing, but require gumption to try again - gumption seems to be in short supply!
None of what Mr. Reich says in this opinion piece is news. It merely states what anyone who has been paying attention has known for the better part of a year. What it doesn't state, correctly, is where the blame belongs. Like so many of us, Mr. Reich appears to be more interested in indignation, than in identifying the real problem, part of which is the failure of the left to understand the problems facing our best leaders, and to maintain solidarity with them in the midst of their troubles.
First, Sen. Jim Jeffords switched parties, and the Democrats threw away the power by not using it. he people got serious in 2006 and gave control of the Congress to the Democrats, who proceeded to claim that they didn't have enough power to do anything - a situation the voters corrected in 2008 with the White House and the Congress being placed firmly in Democratic hands. And yet again, the faithless Democrats threw the power away, claiming that the Republicans were far too strong.
There is too much of a pattern here to believe any longer that this is purely coincidental. Under the New World Order, the Democratic Clown Posse is only intended to provide bipartisan cover for the function of a one-party corporatist state. Only one party is to rule, and that party is not the Democrats.
Not just "won't', but can't!
The "New Depression" will be sold as "the way things should be with time-tested values." i.e. the aristocrats are back and are forming, rapidly, the ruling class.
It's all madness - like Obama freezing the pay of federal employees - a hardship on them and a drop in the bucket.
Get the highest marginal rate back up to at least 50%, quit dribbling away trillions in counter productive wars, pump the extra money into massive public works projects targeted to rebuilding our infrastructures and there we go.
It's not going to happen anytime soon though because the public in general has been sold a bill of goods and not nearly enough people get that. Too many have been manipulated by bogus social issues and boo! - a lot of old fashioned fear. Be afraid, very afraid. So..at this point, I'm wondering how we get there under the current two party system. I don't at this juncture see a road there through the current Washington cesspool.
I and my good friend and next door neighbor, like me, a politically moxie and intuitive Irish American woman, threw an Irish wake for democracy party the evening Reagan was elected.
Now, in today's U.S. of (greed and power) A.(ddiction), we are both once again in mourning, and hating the thought of what a dreadful mess we're handing onto our children, grandchildren, and generations to come.
The slow but sure coming of the villianaire's coup de etat, flagged by a Pres. nicknamed Ike as he left office, came into full bloom during the Bushwhacked years, and now is going to take never before dreamed of steps to undo. But, UNDO THE COUP we must.
One of the great prophet/leaders of our time, Michael Moore, took such a step recently when he and other good souls helped bail out St. Assange. Let's HOPE Michael can create another one of his great films, this one showing a nation dying of thirst for justice and truth, the kind of truth seen in Wikileaks. And yes, Robert Reich, your truth too.
However, one - in the spirit of Obama talking points - must wonder how many millions of jobs those tax cuts saved? (or might have created if the US had not lost it's entire economic base in the two decades preceding Bush?
We do know that following the full implementaion of the Bush tax cuts, in 2003, that federal tax revenue rose a record 44% from 2004-2007 (till the economy crashed again).
Of course, what I say is true - the trick for partisan spewers is to break thru the noise and to actually talk about how to create an actual economy - a broad economy?
This milestone happened in 2000, Mr. Reich.
The data - this theme of this story of "the first time since 1928," was 1st printed in the NY's, by David Kay Johnston: "Richest are leaving even the rich far behind."
Problem here is that Johnston's report was about his analysis, data up to the year 2000.
It was about the great surge of income amongst the wealthy during mostly the 1990's - the Clinton bubble era.
The facts. As a % of total income, the top 1% of income earners soared from 14% in 1993 to 21% in 2000.
Enter Bush-yes, after yrs trying to get the economy going again after inheriting the Clinton crash, the income of the top wealthy fell, then by 2007 it was up to 23%.
Is it still climbing under Obama? Or did the crash takes it's toll, as after the 2000 crash?
The big leap was under Clinton-not Bush. Same for CEO pay.
David also shared this with me, in 2007:
"* Clinton gave the richest of the rich a tax cut worth 67% more than all of the Bush cuts combined"
www.cbpp.org/images/cms//6-25-10inc-f1.jpg
In 2007, the share of after-tax income going to the top 1 percent hit its highest level (17.1 percent) since 1979, while the share going to the middle one-fifth of Americans shrank to its lowest level during this period (14.1 percent).
Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation — an increase in income of $973,100 per household — compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth (see Figure 1).
If all groups’ after-tax incomes had grown at the same percentage rate over ..In 2007, the average household in the top 1 percent had an income of $1.3 million, up $88,800 just from the prior year; this $88,800 gain is well above the total 2007 income of the average middle-income household ($55,300). [1]
BTW - Clinton is pawn of rich and AIPAC -
Johnston, Reich, Krugman, Prante - everyone's looking at the same data. And I did note that after falling back from the 2000 milestone, that it finally got higher, in 2007.
So-look at your graph once again - there it is; from the mid 80's (the recovery from the Carter collapse was done) to around 1994-this stat is dropping. From 1994 to 2000- it's a friggin rocket. Then it sinks again, following the collapse of the 90's Enron bubble, and finally by around 2006 it's back up to the "milestone" of 2000.
I'm not defending the view that this is outrageous-simply pointing out that Reich, as well as the entire national media, has sought to misrepresent when it happened.
You'll also note that other then Reagan's recovery period-it did not go up until Clinton's bubble econ.
See, you can harp on the 1979-2007 number all you want - but the big majority of this shift in fortunes occurred from 1993 to 2000; not before - not after.
BTW - What we seem to have heard all along here was something like, "if we could only have the Clinton years again"
Search me.
It's indeed interesting to note just when this great disparity of wealth actually took off - thru the roof.
CEO pay compared to average worker pay?
http://www.aflcio.org/corporatewatch/paywatch/images/2010_trend_chart_2.gif
I suspect that nobody wants to remember it that way, either.
CEO pay (compared to average worker pay) soared under Clinton - fell back under Bush.
See - now you can check the "thumbs down" to express how comfortable you are with keeping the American people ignorant.
Bank of America Corp.
Thomas Montag
2009 Total Compensation: $29,930,431
Citigroup Inc.
John Havens
2009 Total Compensation: $11,276,454
The Goldman Sachs Group Inc.
Lloyd Blankfein
2009 Total Compensation: $9,862,657
JPMorgan Chase & Co.
James Dimon
2009 Total Compensation: $9,274,494
Morgan Stanley
Walid Chammah
2009 Total Compensation: $10,021,969
Wells Fargo
John Stumpf
2009 Total Compensation: $21,340,547
Executive pay has taken center stage since the $700 billion government bailout of financial institutions. Americans expressed outrage as big banks helped create the financial crisis, took billions in taxpayer bailouts, paid out billions in pay and bonuses and are now lobbying on financial regulatory reform.
forparity - do you believe that the tax cut gave these banksters iniciative to employ more people? Or give better/more loans to SBS? More like lobby for less regulations = MAXIMIZE PROFIT - screw USA
Reagan growth was based on deficit spending - it doubled compared to Carter. And the executives $$ income doubled - consumer goods went to Japaniese - TVs etc. - we were military spending on tanks - this cancer is with US and killing US.
Clinton in 2000 - corporate earnings maxed - there was at least some correlation to CEO earnings. High Tech bubble - any idiot could see that - except Greenspan and WallStreet.
The same housing bubble in 2008 - Japan went through it 20 years ago.
What does that have to do with my comment? Reagan started this trend ... Reich is reight.
It's a cyring shame that Bush didn't see thru the shallowness of the housing bubble economy- and stop it in it's tracks.
Note: Every time (which is almost daily - from the press and all Obama's people) you hear that Clinton left Bush a $5.6 Trillion surplus, and Bush turned it into deficits (according to Peolosi and Fareed Zakaria, by the spring of 2002-- wow)... think "what a pack of lies." Didn't matter who was Pres., Bush or Gore, 80+ % of the shift to major deficits (by 2003) was because of the economy which Clinton left Bush, with a little added loss by the effects of 9/11.
From 2004 forward - I look more towards Bush for not addressing it. But neither is Obama, you see.. just getting worse. Think.
I'm tired of being right, aren't you?
Does anyone in this string have viable ideas for folks like "us" to act on?
You do know that the economics of this will never work out - not even at $800 per person for each one-way trip. What is possible, perhaps in the flat lands of Texas (and with their more functional government and wonderful infrastructure) is not even a pipe dream here in CA.
Here, they'll have to elevate the whole damn thing several feet because of the hype over rising sea levels.
Oh, how's that looking here in Los Angeles?
http://co-ops.nos.noaa.gov/sltrends/sltrends_station.shtml?stnid=9410660
Right - moving right a long at a 3 1/4 inch clip every 100 years - except for the past 30 odd years, when sea level has not risen - any. But the state is spending $tens of millions of dollars trying to scare us all over it.
If we add
costofwar.com
to each car trip per gallon since 2001 - true cost of our transpontation - plus cost of car plus infrastructure - bullet train could make economic sense
"I love to see you get 40 million residents on this one proposed bullet train".
Not to overstate the obvious, but the plan is to have more than one solitary train running on the tracks and more than one line.
"Japan hopes it will win a contract to help California with its plan to build a high-speed rail system by 2030 expected to carry 90 million passengers a year, centred around a Los Angeles-San Francisco line".
Susan, the entire population of California (2009) is 36,961,664, just for your information - and on the weekend that they all decide to flip places between Los Angeles, and San Francisco - I'm staying home.
But does Dr. Reich have his own printing press, or his own printing fiat currency mint?
In 2009, James Skinner, CEO of McDonald’s, received total compensation of $17.6 million. This included salary of $1.4 million, an annual bonus of $3.3 million, a long-term cash award of $8.3 million, stock awards of $1.7 million, stock options of $2.2 million, and benefits and perquisites of $0.7 million. Skinner’s employment contract also included a change-in-control provision under which he would receive three times his base salary and bonus if McDonalds was sold to another company. The change-in-control provision was valued at $19.9 million in 2009. Executive compensation levels have been criticised in recent years, giving rise to shareholder activism.
Divide 17 600 000/30 000 = almost 600 x average employee? And I bet that Skinner's "benefits" are bit better also.
Only in banana republic of USA -
You supported this useless lazy so called democrat,so please donot complain.
I supported Hillary, check my contributions to her, you Keith, Rachel and all of you called Hillary all sort of ugly names, now donot complain
Otherwise you continue to accept that the IRS is the answer - pitting American v American at every level.
The Fairtax.org approach gets politicians and lobbyists out of citizens lives.
Today the biggest threat to citizens livelihood and family is not Al Qaedah - but the IRS - it can ruin your life at every level with its illegal procedures and practices. It's employees have created an entity to itself entirely beyond the reach of the constitution and due legal process - that works to serve their own self-sustaining bureaucracy first - politicians second and American citizens third.
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