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.
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.
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.
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."
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).
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?
Here are a few examples of practical application of these theories, which middle-class citizens might reflect upon:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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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