Republicans are desperate. They can’t attack Obama on jobs because the jobs picture is improving.
Their attack on the Administration’s rule requiring insurers to cover contraception has backfired, raising hackles even among many Republican women.
Their attack on Obama for raising gas prices has elicited scorn from economists of all persuasions who know oil prices are set in global markets and that demand in the United States has actually fallen.
Their presidential ambitions are being trampled in a furious fraternal war among Republican candidates.
Their Tea Party wing wants to reopen the budget deal forged with Democrats after Republicans got bloodied by threatening to block an increase in the debt limit.
So what are Republicans to do now? What they always do when they have nothing else to say.
Call for a tax cut, of course.
It doesn’t matter that their new “tax reform” plan (leaked to the Wall Street Journal late Monday, to be released Tuesday morning) has as much chance of being enacted as Herman Cain has of being elected president.
It doesn’t matter than the plan doesn’t detail how they plan to pay for the tax cuts. Or whether an even bigger whack would have to be taken out of Medicare than Paul Ryan’s original voucher plan – which would drowned many elderly under rising medical costs.
It doesn’t even matter that the plan would probably raise taxes on many lower-income Americans,
All that matters is the headlines.
“House Republican Budget to Propose Lower Income Tax Rates,” says Bloomberg Businessweek. “Republican Budget Plan Seeks to Play Up Tax Reform,” says Reuters. “GOP’s Budget Targets Taxes,” blares the Wall Street Journal.
Presto. Republicans have gotten what they wanted on the basis of saying absolutely nothing.
Gas prices continue to rise, which is finally giving Republicans an issue. Mitt Romney is demanding the President open up more domestic drilling; the super PAC behind Rick Santorum just released a new ad in Louisiana blasting the President on gas prices; and the GOP is attacking the White House on the Keystone XL Pipeline.
But the rise in gas prices has almost nothing to do with energy policy. It has everything to do with America’s continuing failure to adequately regulate Wall Street. But don’t hold your breath waiting for Republicans to tell the truth.
As I’ve noted before, oil supplies aren’t being squeezed. Over 80 percent of America’s energy needs are now being satisfied by domestic supplies. In fact, we’re starting to become an energy exporter. Demand for oil isn’t rising in any event. Demand is down in the U.S. compared to last year at this time, and global demand is still moderate given the economic slowdowns in Europe and China.
But Wall Street is betting on higher oil prices in the future — and that betting is causing prices to rise. The Street is laying odds that unrest in Syria will spill over into other countries or that tensions with Iran will affect the Persian Gulf, and that global demand will pick up as American consumers bounce back to life.
These bets are pushing up oil prices because Wall Street firms and other big financial players now dominate oil trading.
Financial speculators historically accounted for about 30 percent of oil contracts, producers and end users for about 70 percent. But today speculators account for 64 percent of all contracts.
Bart Chilton, a commissioner at the Commodity Futures Trading Commission — the federal agency that regulates trading in oil futures, among other commodities — warns that too few financial players control too much of the oil market. This allows them to push oil prices higher and higher — not only on the basis of their expectations about the future but also expectations about how high other speculators will drive the price.
In other words, a relatively few players with very deep pockets are placing huge bets on oil — and you’re paying.
Chilton estimates that drivers of small cars like Honda Civics are paying an extra $7.30 every time they fill up — and that money is going into the pockets of Wall Street speculators. Drivers of larger vehicles like the Ford Explorer are paying speculators $10.41 when they fill up.
Funny, but I don’t hear Republicans rail against Wall Street speculators. Could this have anything to do with the fact that hedge funds and money managers are bankrolling the GOP as never before?
Wall Street isn’t bankrolling Democrats nearly as much this time around because the Street is still smarting from the Dodd-Frank Wall Street reform law pushed by the Democrats, and from the president’s offhand remark in 2010 calling the denizens of the Street “fat cats.”
The Commodity Futures Trading Commission is trying to limit how much speculators can bet in oil futures — a power it was given by Dodd-Frank. It issued a rule in October, but it won’t take effect for another year.
Meanwhile, Wall Street has gone to court to stop the rule. It’s already won a stay.
As rising gas prices start wagging the election-year dog, the President should let America know what’s really causing prices to rise.
Republicans have morality upside down. Santorum, Gingrich, and even Romney are barnstorming across the land condemning gay marriage, abortion, out-of-wedlock births, access to contraception, and the wall separating church and state.
But America’s problem isn’t a breakdown in private morality. It’s a breakdown in public morality. What Americans do in their bedrooms is their own business. What corporate executives and Wall Street financiers do in boardrooms and executive suites affects all of us.
There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”
Political scientist James Q. Wilson, who died last week, noted that a broken window left unattended signals that no one cares if windows are broken. It becomes an ongoing invitation to throw more stones at more windows, ultimately undermining moral standards of the entire community
The windows Wall Street broke in the years leading up to the crash of 2008 remain broken. Despite financial fraud on a scale not seen in this country for more than eighty years, not a single executive of a major Wall Street bank has been charged with a crime.
Since 2009, the Securities and Exchange Commission has filed 25 cases against mortgage originators and securities firms. A few are still being litigated but most have been settled. They’ve generated almost $2 billion in penalties and other forms of monetary relief, according to the Commission. But almost none of this money has come out of the pockets of CEOs or other company officials; it has come out of the companies — or, more accurately, their shareholders. Federal prosecutors are now signaling they won’t even bring charges in the brazen case of MF Global, which lost billions of dollars that were supposed to be kept safe.
Nor have any of the lawyers, accountants, auditors, or top executives of credit-rating agencies who aided and abetted Wall Street financiers been charged with doing anything wrong.
And the new Dodd-Frank law that was supposed to prevent this from happening again is now so riddled with loopholes, courtesy of Wall Street lobbyists, that it’s almost a sham. The Street prevented the Glass-Steagall Act from being resurrected, and successfully fought against limits on the size of the largest banks.
Windows started breaking years ago. Enron’s court-appointed trustee reported that bankers from Citigroup and JP Morgan Chase didn’t merely look the other way; they dreamed up and sold Enron financial schemes specifically designed to allow Enron to commit fraud. Arthur Andersen, Enron’s auditor, was convicted of obstructing justice by shredding Enron documents, yet most of the Andersen partners who aided and abetted Enron were never punished.
Americans are entitled to their own religious views about gay marriage, contraception, out-of-wedlock births, abortion, and God. We can be truly free only if we’re confident we can go about our private lives without being monitored or intruded upon by government, and can practice whatever faith (or lack of faith) we wish regardless of the religious beliefs of others. A society where one set of religious views is imposed on a large number of citizens who disagree with them is not a democracy. It’s a theocracy.
But abuses of public trust such as we’ve witnessed for years on the Street and in the executive suites of our largest corporations are not matters of private morality. They’re violations of public morality. They undermine the integrity of our economy and democracy. They’ve led millions of Americans to conclude the game is rigged.
Regressive Republicans have no problem hurling the epithets “shameful,” “disgraceful,” and “contemptible” at private moral decisions they disagree with. Rush Limbaugh calls a young woman a “slut” just for standing up for her beliefs about private morality.
Republicans have staked out the moral low ground. It’s time for Democrats and progressives to stake out the moral high ground, condemning the abuses of economic power and privilege that characterize this new Gilded Age – business deals that are technically legal but wrong because they exploit the trust that investors or employees have place in those businesses, pay packages that are ludicrously high compared with the pay of average workers, political donations so large as to breed cynicism about the ability of their recipients to represent the public as a whole.
An economy is built on a foundation of shared morality. Adam Smith never called himself an economist. The separate field of economics didn’t exist in the eighteenth century. He called himself a moral philosopher. And the book he was proudest of wasn’t “The Wealth of Nations,” but his “Theory of Moral Sentiments” – about the ties that bind people together into societies.
Twice before progressive have saved capitalism from its own excesses by appealing to public morality and common sense. First in the early 1900s, when the captains for American industry had monopolized the economy into giant trusts, American politics had sunk into a swamp of patronage and corruption, and many factory jobs were unsafe – entailing long hours of work at meager pay and often exploiting children. In response, we enacted antitrust, civil service reforms, and labor protections.
And then again in 1930s after the stock market collapsed and a large portion of American workforce was unemployed. Then we regulated banks and insured deposits, cleaned up stock market, and provided social insurance to the destitute.
It’s time once again to save capitalism from its own excesses — and to base a new era of reform on public morality and common sense.
Let Santorum and Romney duke it out for who will cut taxes on the wealthy the most and shred the public services everyone else depends on.
The rest of us ought to be having a serious discussion about a wealth tax. Because if you really want to know what’s happening to the American economy you need to look at household wealth — not just incomes.
Good news? Take closer look. The entire gain came from increases in stock prices. Those increases in stock values more than made up for continued losses in home values.
But the vast majority of Americans don’t have their wealth in the stock market. Over 90 percent of the nation’s financial assets – including stocks and pension-fund holdings – are owned by the richest 10 percent of Americans. The top 1 percent owns 38 percent.
Most Americans have their wealth in their homes – whose prices continue to drop. Housing prices are down by a third from their 2006 peak.
So as the value of financial assets held by American households increased by $1.46 trillion in the fourth quarter, the wealthiest 10 percent of Americans became $1.3 trillion richer, and the wealthiest 1 percent became $554.8 billion richer.
But at the same time, as the value of household real estate fell by $367.4 billion in the fourth quarter, homeowners – mostly middle class – lost over $141 billion (owners’ equity is 38.4 percent of total household real estate).
Presto. America’s wealth gap – already wider than the nation’s income gap – has become even wider. The 400 richest Americans have more wealth than the bottom 150 million Americans put together.
Given this unprecedented concentration of wealth – and considering what the nation needs to do to rebuild our schools and infrastructure while at the same time saving Medicare and reducing the long-term budget deficit – shouldn’t we be aiming higher than a “Buffet tax” on the incomes of millionaires?
There should also be a surtax on the super rich.
Yale Professor Bruce Ackerman and Anne Alstott have proposed a 2 percent surtax on the wealth of the richest one-half of 1 percent of Americans owning more than $7.2 million of assets. They figure it would generate $70 billion a year, or $750 billion over the decade. That’s half the savings Congress’s now defunct Supercommittee was aiming for.
Instead of standing empty-handed while Santorum and Romney dominate the airwaves with their regressive Social Darwinism, Democrats need to be reminding Americans of what’s happening in the real economy – and what needs to happen.
The wealth gap is widening into a chasm. A surtax on the super rich is fair — and it’s necessary.
Jobs are coming back fast enough to blunt Republican attacks against Obama on the economy and to rob Romney of the issue he’d prefer to be talking about in his primary battle against social conservatives in the GOP.
But jobs aren’t coming back fast enough to significantly reduce the nation’s backlog of 10 million jobs. That backlog consists of 5.3 million lost during the recession and another 4.7 million that needed to have been added just to keep up with the growth of the working-age population since the recession began.
If the American economy continues to produce jobs at the good rate it’s maintained over the last three months, averaging 245,000 per month, the backlog won’t be whittled down for another five years — long after Barack Obama finishes his second term, should voters grant him another.
But whether even that good rate continues depends largely on whether consumer demand can be revived. Spending by American consumers is 70 percent of U.S. economic activity. But so far, spending is anemic.
American consumers have replaced worn-out cars and appliances, but little else. They haven’t had the dough. Their wages are still falling, adjusted for inflation. The value of their homes – most consumers’ single biggest asset – continues to drop.
Home values are down by an average of a third from their 2006 peak. Consumers understandably feel far poorer as a result. Declining home prices also mean consumers can’t use their homes as collateral for new loans, as they did before 2008. And even with low interest rates, refinancing is difficult.
Corporate profits are up but the money isn’t flowing to American workers. The ratio of profits to wages is the highest on record – since the government began keeping track in 1947. Not only has the median wage continued to drop, adjusted for inflation, but a far smaller share of working-age Americans is now employed (58.6 percent) than was employed five years ago (63.3 percent). Today’s employment-to-population ratio isn’t much higher than it was at its lowest point last summer, when it dropped to 58.2 percent.
The major driver of the U.S. economy over the past several months hasn’t been consumer spending. It’s been businesses rebuilding depleted inventories. Wholesalers increased their stockpiles again in January, bringing them up almost a quarter from their low in September 2009.
But businesses won’t continue to rebuild inventories unless consumers start buying again. big-time. And consumers won’t resume spending as they did before the recession until they’re far better off financially.
Yet how can they be sufficiently better off when their major asset has shrunk so much and when so few of the economic gains are going to them?
This is the central paradox at the heart of the American economy today. If it’s not resolved, the jobs recovery will stall, as it did last spring.
A year ago, remember, we had another three-month run of good job numbers. Last February, March, and April saw net gains of more than 200,000 jobs a month. But that job boomlet abruptly ended.
At the time most observers blamed the stall on external events – the Japanese earthquake, Europe’s gathering debt woes, and higher gas prices. In reality, it stalled because of the shallow pockets of American consumers.
But if another stall occurs, the real reason will be Americans once again ran out of money.
Here’s the good news. The economic pie is growing again. Growth in the 4th quarter last year hit 3 percent on an annualized rate. That’s respectable – although still way too slow to get us back on track given how far we plunged.
Here’s the bad news. The share of that growth going to American workers is at a record low.
That’s largely because far fewer Americans are working. Although the nation is now producing more goods and services than it did before the slump began in 2007, we’re doing it with six million fewer people.
Why? Credit technology. Computers, software applications, and the Internet are letting us produce more with fewer people.
In theory, this is a huge plus. We can live better and have more time off.
But as Tonto asked the Lone Ranger, “who’s ‘we,’ kemosabe?”
The challenge at the heart of the productivity revolution – and it is a revolution – is how to distribute the gains. So far, we’ve been failing miserably to meet that challenge.
True, some of the gains are widely spread in the form of lower prices and higher value. My 3-year-old granddaughter gets more out of an i-Phone in five minutes than my 98-year-old father ever got out of reading the daily paper (putting to one side their relative capacities to process the information).
But many of the gains are distributed narrowly in the form of profits to owners, and fat compensation packages to the “talent.”
The share of the gains going to everyone else in the form of wages and salaries has been shrinking. It’s now the smallest since the government began keeping track in 1947.
If the trend continues, inequality will become ever more extreme.
We’ll also face chronically insufficient demand for all the goods and services the productivity revolution can generate. That’s because the rich save more of their earnings than everyone else, while middle and lower-income families – with fewer jobs or lower wages – no longer have the purchasing power to keep the economy going at full tilt. (Before 2008 they kept up their buying by sinking deep into debt. This proved to be an unsustainable strategy.)
Insufficient demand – as everyone but regressive supply-siders now recognize – is a big reason why the current recovery has been so anemic and the pie isn’t growing faster.
So while the productivity revolution is indubitably good, the task ahead is to figure out how to distribute more of its gains to more of our people.
One possibility: higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.
We also need better schools (from early-childhood through young adulthood, followed by systems of lifelong learning) so everyone has a fair shot at a larger share of the gains.
Finally, the benefits of the productivity revolution should be turned into more abundant public goods – cleaner air and water, better parks and recreation, improved public health, and better public transit.
Regressive right wingers want Americans to believe we’ve been living beyond our means, and can no longer afford it.
The truth is just the reverse. Most Americans’ means haven’t kept up with what the economy could provide – if the fruits of the productivity revolution were more widely shared.
Regressives growl about America’s borrowing and tut-tut about future federal budget deficits. The reality is the world is willing to lend us vast amounts of money because we’re so productive. And the productivity revolution is making us ever more so.
Get it? The pie is growing again but most people aren’t getting much of a slice. That’s bad even for those getting the biggest pieces. They’d do better with smaller slices of a pie that grew much faster.
Last week Rick Santorum called the President “a snob” for wanting everyone to get a college education (in fact, Obama never actually called for universal college education but only for a year or more of training after high school).
Santorum needn’t worry. America is already making it harder for young people of modest means to attend college. Public higher education is being starved, and the middle class will shrink even more as a result.
Over just the last year forty-one states have cut spending for public higher education. That’s on top of deep cuts in 2009 and 2010. Some, such as the University of New Hampshire, have lost over 40 percent of their state funding; the University of Washington, 26 percent; Florida’s public university system, 25 percent.
Rising tuition and fees are making up the shortfall. This year, the average hike is 8.3 percent. New York’s state university system is increasing tuition 14 percent; Arizona, 17 percent; Washington state, 16 percent. Students in California’s public universities and colleges are facing an average increase of 21 percent, the highest in the nation.
The children of middle and lower-income families are hardest hit. Remember: The median wage has been dropping since 2000, adjusted for inflation.
Pell Grants for students from poor families are falling further behind; they now cover only about a third of tuition and fees. (In the 1980s, they covered about half; in the 1970s, more than 70 percent.)
Student debt is skyrocketing – the New York Federal Reserve Bank estimates it at $550 billion. Punitive laws enforce repayment, and it’s almost impossible to shed student loans in bankruptcy. There is no statue of limitations for non-repayment.
Santorum’s rant notwithstanding, good-paying jobs in America are coming to require a college degree. Globalization and rapid technological change are putting a premium on the ability to identify and solve new problems. A college degree is also a signal to prospective employers that a young person has what it takes to succeed.
That’s why the median annual pay of people with a bachelor’s degree was 70 percent higher than those with a high school diploma in 2009 (the latest Census data available).
Yet public higher education isn’t just a private investment. It’s a public good. Our young people — their capacities to think, understand, investigate, and innovate — are America’s future.
We used to understand this. During the great expansion of public higher education from the 1950s to the 1970s, tuition at public universities averaged about 4 percent of median family income (compared to around 20 percent at private universities).
Young Americans received college degrees in record numbers – creating a cohort of scientists, engineers, managers, and professionals that propelled the economy forward and dramatically expanded the middle class.
But starting in the 1980s, as in so many other areas of American life, we took a U-turn. Tuition at public universities began climbing. By 2005, it was more than 10 percent of median annual family income. Now it’s approaching 25 percent – still a good deal relative to private universities (where it’s nearly 70 percent), but high enough to discourage many qualified young people from attending.
Public higher education has been the gateway to the middle class, but that gate is shutting – just when income and wealth are more concentrated at the top than they’ve been since the 1920s, and when America needs the brainpower of its young people more than ever.
This is nuts.
What’s the answer? Partly to make public universities more efficient. Every bureaucracy I’ve ever been associated with (and I’ve been in some very big ones) has some fat to be trimmed. Yet universities are necessarily labor-intensive enterprises; research and teaching can’t be outsourced abroad or turned over to computerized machine tools.
Another part of the answer is to raise tuition and fees for students from higher-income families and use the extra money to subsidize medium and lower-income kids. Even now relatively few pay the official sticker price; many receive some discount proportional to family income. But this won’t solve the underlying problem, ether.
A big part of the answer has to be more government support for public education at all levels. This requires more tax revenues – especially from Americans who are best able to pay.
Most Americans still believe in the ideal of equal opportunity. And most harbor the patriotic notion that we have responsibilities to one another as members of the same society.
The two principles lead to an obvious conclusion: America’s richest citizens have a duty to pay more taxes so kids from middle and lower-income families have chance to make it in America.
Economic cheerleaders on Wall Street and in the White House are taking heart. The US has had three straight months of faster job growth. The number of Americans each week filing new claims for unemployment benefits is down by more than 50,000 since early January. Corporate profits are healthy. The S&P 500 on Friday closed at a post-financial crisis high.
Has the American recovery finally entered the sweet virtuous cycle in which more spending generates more jobs, more jobs make consumers more confident, and the confidence creates more spending?
On the surface it would appear so.
American consumers in recent months have let loose their pent-up demand for cars and appliances. Businesses have been replacing low inventories and worn equipment. The richest 10 per cent, owners of approximately 90 per cent of the nation’s financial capital, have felt freer to splurge. Consumer confidence is at a one-year high, according to data released on Friday.
The U.S. government has not succumbed entirely to the lunacy of austerity. Republicans in Congress have just agreed to extend both a payroll tax cut and extra unemployment benefits, and the US Federal Reserve is resolutely keeping interest rates near zero.
Yet the US economy has been down so long that it needs substantial growth to get back on track – far faster than the 2.2 - 2.7 per cent projected by the Federal Reserve for this year (a projection which itself is likely to be far too optimistic).
A strong recovery can’t rely on pent-up demand for replacements or on the spending of the richest 10 per cent. Consumer spending is 70 per cent of the US economy, so a buoyant recovery must involve the vast middle class.
But America’s middle class is still hobbled by net job losses and shrinking wages and benefits. Although the US population is much larger than it was 10 years ago, the total number of jobs today is no more than it was then. A significant portion of the working population has been sidelined – many for good. And the median wage continues to drop, adjusted for inflation. On top of all that, rising gas prices are squeezing home budgets even more.
Yet the biggest continuing problem for most Americans is their homes.
Purchases of new homes are down 77 per cent from their 2005 peak. They dropped another 0.9 per cent in January. Home sales overall are still dropping, and prices are still falling – despite already being down by a third from their 2006 peak. January’s average sale price was $154,700, down from $162,210 in December.
Houses are the major assets of the American middle class. Most Americans are therefore far poorer than they were six years ago. Almost one out of three homeowners with a mortgage is now “underwater”, owing more to the banks than their homes are worth on the market.
Optimists point to declining home inventories in relation to sales, but they’re looking at an illusion. Those supposed inventories don’t include about 5 million housing units with delinquent mortgages or those in foreclosure, which will soon be added to the pile. Nor do they include approximately 3 million housing units that stand vacant – foreclosed upon but not yet listed for sale, or vacant homes that owners have pulled off the market because they can’t get a decent price for them. Vacancies are up 1m from 2006.
What we’re witnessing is a fundamental change in the consciousness of Americans about their homes. Starting at the end of the second world war, houses were seen as good and safe investments because home values continuously rose. In the late 1960s and 1970s, early baby boomers got the largest mortgages they could afford, and watched their nest eggs grow into ostrich eggs.
Trading up became the norm. Homes morphed into automatic teller machines, as baby boomers used them as collateral for additional loans. By the rip-roaring 2000s, it was not unusual for the middle class to buy second and third homes on speculation. Most assumed their homes would become their retirement savings. When the time came, they’d trade them in for a smaller unit, and live off the capital gains.
The plunge in home values has changed all this. Young couples are no longer buying homes; they’re renting because they’re not confident they can get or hold jobs that will reliably allow them to pay a mortgage. Middle-aged couples are underwater or unable to sell their homes at prices that allow them to recover their initial investments. They can’t relocate to find employment. They can’t retire.
The negative wealth effect of home values, combined with declining wages, makes it highly unlikely the US will enjoy a robust recovery any time soon.
Under these circumstances it’s not enough to rely on low interest rates and make it easier for homeowners who have kept up with their mortgage payments to refinance their underwater homes. The Administration should also push to alter the federal bankruptcy law, so homeowners can use the protection of bankruptcy to reorganize their mortgage loans. (Few will actually do so, but the change would give homeowners more bargaining power to get lenders to voluntarily alter the terms.) A second possibility if for the Federal Housing Administration to offer to take on a portion of a household’s mortgage debt in exchange for an equitable interest in the home, of the same proportion, when it is sold. Such debt-for-equity swaps could help homeowners now struggling to keep up with their mortgage payments, while not adding to the federal budget in future years when housing prices are expected to rise.
But whatever is done will not affect the fundamental change that’s come over Americans with regard to their homes. It’s not clear what will take the place of houses as the major investments of the American middle class.
[I wrote this for the Financial Times, where it appeared yesterday]
My father was a Republican for the first 78 years of his life. For the last twenty, he’s been a Democrat (he just celebrated his 98th.) What happened? “They lost me,” he says.
They’re losing even more Americans now, as the four remaining GOP candidates seek to out-do one another in their race for the votes of the loony right that’s taken over the Grand Old Party.
But the rest of us have reason to worry.
A party of birthers, creationists, theocrats, climate-change deniers, nativists, gay-bashers, anti-abortionists, media paranoids, anti-intellectuals, and out-of-touch country clubbers cannot govern America.
Yet even if they lose the presidency on Election Day they’re still likely to be in charge of at least one house of Congress as well as several state legislators and governorships. That’s a problem for the nation.
The GOP’s drift toward loopyness started in 1993 when Bill Clinton became the first Democrat in the White House in a dozen years – and promptly allowed gays in the military, pushed through the Brady handgun act, had the audacity to staff his administration with strong women and African-Americans, and gave Hillary the task of crafting a national health bill. Bill and Hillary were secular boomers with Ivy League credentials who thought government had a positive role to play in peoples’ lives.
This was enough to stir right-wing evangelicals in the South, social conservatives in the Midwest and on the Great Plains, and stop-at-nothing extremists in Washington and the media who hounded Bill Clinton for eight years, then stole the 2000 election from Al Gore, and Swift-boated John Kerry in 2004.
They were not pleased to have a Democrat back in the White House in 2008, let alone a black one. They rose up in the 2010 election cycle as “tea partiers” and have by now pushed the GOP further right than it has been in more than eighty years. Even formerly sensible senators like Olympia Snowe, Orrin Hatch, and Dick Lugar are moving to the extreme right in order to keep their seats.
At this rate the GOP will end up on the dust heap of history. Young Americans are more tolerant, cosmopolitan, better educated, and more socially liberal than their parents. And relative to the typical middle-aged America, they are also more Hispanic and more shades of brown. Today’s Republican Party is as relevant to what America is becoming as an ice pick in New Orleans.
In the meantime, though, we are in trouble. America is a winner-take-all election system in which a party needs only 51 percent (or, in a three-way race, a plurality) in order to gain control.
In parliamentary systems of government, small groups representing loony fringes can be absorbed relatively harmlessly into adult governing coalitions.
But here, as we’re seeing, a loony fringe can take over an entire party — and that party will inevitably take over some part of our federal, state, and local governments.
As such, the loony right is a clear and present danger.
The Obama administration is proposing to lower corporate taxes from the current 35 percent to 28 percent for most companies and to 25 percent for manufacturers.
The move is supposed to be “revenue neutral” – meaning the Administration is also proposing to close assorted corporate tax loopholes to offset the lost revenues. One such loophole allows corporations to park their earnings overseas where taxes are lower.
Why isn’t the White House just proposing to close the loopholes without reducing overall corporate tax rates? That would generate more tax revenue that could be used for, say, public schools.
It’s not as if corporations are hurting. Quite the contrary. American companies are booking higher profits than ever. They’re sitting on $2 trillion of cash they don’t know what to do with.
And it’s not as if corporate taxes are high. In fact, corporate tax receipts as a share of profits is now at its lowest level in at least 40 years. According to the Congressional Budget Office, corporate federal taxes paid last year dropped to 12.1 percent of profits earned from activities within the United States. That’s a gigantic drop from the 25.6 percent, on average, that corporations paid from 1987 to 2008.
And it’s not that corporations are paying an inordinate share of federal tax revenues. Here again, the reality is just the opposite. Corporate taxes have plummeted as a share of total federal revenues. In 1953, under President Dwight Eisenhower, a Republican, corporate taxes accounted for 32 percent of total federal tax revenues. Now they’re only 10 percent.
But now the federal budget deficit is ballooning, and in less than a year major cuts are scheduled to slice everything from prenatal care to Medicare. So this would seem to be the ideal time to raise corporate taxes – or at the very least close corporate tax loopholes without lowering corporate rates.
The average American is not exactly enamored with American corporations. Polls show most of the public doesn’t trust them. (A recent national poll by the University of Massachusetts at Lowell found 71 percent with an unfavorable impression of big business – about the same as those expressing an unfavorable view of Washington.)
The Administration’s initiative doesn’t even make sense as a bargaining maneuver.
Republicans will just accept the Administration’s lower corporate tax rate without closing any tax loopholes. House Republicans have already made it clear that, to them, closing a tax loophole is tantamount to raising taxes. And corporate lobbyists in Washington know better than anyone how to hold tight to loopholes they’ve already got.
Big business will fight to keep their foreign tax shelters. After all, it’s almost impossible to distinguish between their foreign and domestic earnings, which is why the U.S. Chamber of Commerce and other business lobbies have spent the past three years trying to make it even easier for companies to defer U.S. taxes on income they supposedly earn outside the country.
Representative David Camp, a Michigan Republican who heads the House Ways and Means Committee, has already proposed a 25 percent corporate top rate and changes that would let companies avoid paying U.S. taxes on even more of the income they say they earn outside America.
Nothing is going to be enacted this year, anyway, so it would have made more sense for the Administration to support a hike in corporate taxes – and use it to highlight the difference between the President and his likely Republican challenger.
Mitt Romney wants to reduce the corporate tax rate to 25 percent before eliminating any tax loopholes. Rick Santorum wants to cut the rate to 17.5 percent and eliminate corporate taxes for manufacturers. Newt Gingrich wants to cut the rate to 12.5 percent and let companies write off all capital investments immediately.
It’s discouraging. The President gives a rousing speech, as he did on December 6 in Kansas. Then he misses an opportunity to put his campaign where his mouth is.