What with the president’s war on immigrants, his travel ban, his Putinphilia, his threats to Obamacare, and his cabinet picks, congressional Democrats have spent most of the last month busily saying “No,” with the occasional “Maybe” thrown in by some red-state senators. What congressional Democrats haven’t done is propose some serious alternatives to the economic policies that Trump and congressional Republicans are poised to inflict on the (partly wary, partly unsuspecting) nation.
And that’s a mistake.
Not right now, perhaps. To some degree, the Democrats’ strategy has to be guided by the same criteria as an ER physician: the most urgent cases first. As well, as my colleague Paul Waldman argued on Monday, the 2018 elections, like all midterms, will largely be about mobilizing one’s base, and nothing stirs the Democratic base these days like opposing Donald Trump in every way possible. Standing up and saying “No,” as the Tea Party demonstrated in 2010, is a pretty good path to midterm success.
But only up to a point. Ohio’s Sherrod Brown and Wisconsin’s Tammy Baldwin—two stellar progressive Democratic senators up for re-election in 2018—surely need the support of a higher share of the many white working-class voters in their states than Hillary Clinton won last November. And the way to win that higher share is to do what Brown and Baldwin have done in their past elections: Make a plausible progressive populist pitch on economic issues.
Brown and Baldwin are not alone in this. There will be other Democratic Senate and House candidates who will have to campaign on those themes (among other themes) as well.
The widespread support for economic populism that fueled Bernie Sanders’s insurgency and was embraced, if awkwardly, by Hillary Clinton, hasn’t gone away. A poll released Tuesday from Public Policy Polling, for instance, showed that in seven states (Delaware, Florida, Missouri, Montana, Ohio, Wisconsin, and West Virginia) where Democratic senators will face tough electoral challenges next year, the populist arguments against confirming Neil Gorsuch for the Supreme Court (he’s sided with insurance companies against consumers, employers against wage-withheld workers, and so on) carry much more weight than the argument that the Republicans stole his seat.
On broad economic questions, congressional Democrats will need to clearly counter-pose populist policies to those that the administration and congressional Republicans will soon present on taxes and bank regulations. Given both the populist sentiment abroad in the land and the Democrats’ overall move leftward, that shouldn’t be all that hard to do.
For one thing, there’s abundant evidence that workers have been getting less and less of the wealth they create. That’s been clear in the data coming from economists like Thomas Piketty and Emmanuel Saez, and from the University of Massachusetts’s William Lazonick, who has documented how over the past decade, the companies on the Fortune 500 have devoted nearly all their net revenue to dividends and share buybacks at the expense of wage hikes, R&D, and investment in capital—often incurring debt purely to funnel funds to shareholders.
A paper published by Simcha Barkai of the University of Chicago’s Stigler Center last November confirms this analysis and takes it one step further. Looking at the period between 1984 and 2014, Barkai finds, the labor share of the national income has declined by 6.7 percent. What’s new about his work is that he’s broken down Piketty’s capital share into two components: capital and profit. By capital, Barkai means funds reinvested by corporations in equipment, research, new hires and the like; and the normal rate of return on investment, for which interest rates are a main measure. By profit, he means funds not reinvested, over and above the normal rate of return, which go to shareholders. Using these categories, Barkai finds that since 1984, not only has the labor share declined by 6.7 percent, but the capital share has also declined by 7.2 percent, while the profit share has increased by 13.5 percent.
That leaves American workers, as it were, doubly screwed: The share of the wealth that had accrued to them as wages and benefits, and the share that had been invested in technology and equipment to increase productivity and jobs, have both diminished. At the same time, that share going to profit (which shareholders then invest in companies on the condition that it is sent back to investors with even more profit attached, derived from lower labor and capital costs) has skyrocketed.
Barkai’s paper is pure economics; he makes no effort do adduce causality, to say what led to this epochal shift within the nation’s income and wealth. But taking 1984 as his measuring point provides analytical fodder enough: That was when the Reagan administration’s deregulation of finance and the rise of Wall Street went into high gear, when the war on unions accelerated, when, at Wall Street’s behest, corporations began seeking cheaper overseas labor, when CEO’s began to realize they could make more money by linking their pay to the value of their companies’ shares, and when the gospel of maximizing shareholder value began to take root and to be construed as minimizing everything else: workers, research, investment.
Armed with data such as that adduced by Barkai, Lazonick, and their peers, and backed by an electorate understandably skeptical that the Great Recession has really ended, here’s how Democrats should respond to the Republican economic proposals soon to descend on us.
First, on the issue of repatriating the roughly $2 trillion in profits that American corporations have stashed in overseas tax havens, the Republicans are likely to entice those corporations to return that cash by taxing it at a very low rate.
Under the rubric of Investing in American Workers, the Democrats should propose a sliding scale for those corporations. If they invest an amount equal to, say, 90 percent of the returned funds domestically, then yes, they should pay a very low rate on those funds. Seventy percent, not so low. Forty percent, to hell with them: If they don’t want to invest it in job-creating ventures here in the U.S., no tax break for them.
But won’t those corporations put those repatriated funds into productive domestic investment without the prodding of variable tax rates? Fat chance. Luca Maestri, the chief financial officer of Apple, which has more money stashed abroad than any other company, recently said that repatriating that money would give Apple “additional flexibility around our capital return activities.” That’s why Democrats need to compel corporations to invest.
Second, on the issue of CEO pay, which stands at roughly 300 times that of the median employee—up from roughly 20 times in the mid-1960s, when the economy was perking along just fine—Republicans propose … well, nothing. Indeed, the Securities and Exchange Commission, which under the terms of Dodd-Frank was about to compel publicly listed corporations to provide it with those ratios, is almost certain to drop that requirement now that it is under GOP control.
When the Republicans introduce their corporate tax reform bill, the Democrats, under the rubric of Investing in American Workers, should propose another sliding scale. For corporations that pay their CEO less than 100 times his or her median worker (and by worker, I mean employee and sub-contracted employee and independent contractor, whose hourly rate should be annualized for purposes of this calculation), let’s have a low corporate tax rate. For those that pay between 100 times and 200 times, not so low—and so on up the scale. Force the Republicans to explain why CEOs are worth so much more than their employees, and why they deserve a reward for rising share prices while their employees do not. A variant of this would be to create lower corporate tax rates for companies that link not just median and CEO wages at a justifiable ratio, but that also link rewards to profitable years. And raise taxes on corporations that don’t create such links.
Portland, Oregon, recently reconfigured its business tax to create a lower rate for employers doing business locally (including national chains) that pay their CEO less than 100 times what they paid their median worker. A similar bill nearly passed the California State Senate two years ago.
Nothing would boost Investing in the American Worker like Empowering the American Worker. So, another sliding scale for corporate taxes comes to mind. Democrats should propose greatly reducing corporate taxes on businesses that divide their corporate boards equally between worker and shareholder/manager representatives, as Germany requires its corporations to do. (The German economy, need I mention, is both thriving and subject to far less economic inequality than ours).
Republicans will be busy not only crafting tax giveaways to the wealthy but also repealing as many Dodd-Frank bank regulations as they can get away with. One way they’re likely to help their Wall Street friends is to lower the banks’ capital requirements—the amount of funds banks need to keep on hand lest another financial panic compels them, oh so reluctantly, to have us bail them out. Since President Trump has complained that these capital reserve requirements have forced banks to deny loans to his friends, Democrats (once they’ve invariably failed to convince Republicans to keep the regs in place) should propose using a sliding tax code that rewards banks for making responsible loans with the funds they gain from deregulation, and punishes them for simply throwing those funds at their shareholders. Banks, after all, are subject to the same maximizing-shareholder-value-at-the-expense-of-all-else pressures as the rest of corporate America. As a Wall Street Journal story on the consequences of bank deregulation noted earlier this month, “The six biggest U.S. banks could potentially return more than $100 billion in capital to investors over time through dividends and share buybacks if the Trump administration succeeds in a push to loosen bank regulation. … Before the financial crisis, it was common for large banks to spend more on dividends and stock repurchases than they earned in profit.”
The case for Democrats to make these proposals is straightforward: At a time when Americans clearly understand the economy is rigged against them, and when they’d also respond quite favorably to the creation of good jobs, the debate over tax reform, bank regulations and the like is still uncannily divorced from these concerns. By using the tax and regulatory codes to reward corporations for mitigating these problems, and penalize them for exacerbating them, the Democrats sound a resonant populist theme that dramatizes their willingness to remedy, and the Republicans’ unwillingness to fix, the dysfunctions of American capitalism. They do so, moreover, in a way that doesn’t touch on any third rails, real or imagined, in the political debate: They’re not arguing for enlarging government or raising people’s taxes (unless you believe, with Mitt Romney, that corporations are people, and in this case, bad ones) or setting up any bureaucracies. They’re talking about policies that will lead to private-sector job creation and improvement. They’re promoting policies that strike a chord both with the Democratic base and with those mid-spectrum and Trump voters who saw their candidate, however delusionally, as the workers’ tribune.
So why wait for the Republicans to present their feed-the-rich tax and deregulatory proposals? Democrats, you can take that tax reform debate, shake it upside down, and have an economic platform to run on—and win on, too.
Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.