To hear Democratic contenders in this final stretch before the primaries, you'd think the biggest economic question facing America is whether to repeal all or part of George W. Bush's tax cuts. How utterly pathetic. This lets Bush frame the issue, casts Democrats as taxers and fails to put forward a positive vision of what Dems will do for average Americans.
Let's be clear about America's real economic problem: Even with jobs beginning to return and the economy starting to regain momentum, the typical American family continues to struggle to pay the bills. Indeed, the struggle is worse than ever. Over the past quarter-century, while the American economy (adjusted for inflation) has doubled in size, median incomes have barely risen. And because the typical family now pays far more for housing and health insurance than it did then, real incomes have actually fallen behind. No wonder most working Americans are deeper in debt than ever before. As Elizabeth Warren and Amelia Warren Tyagi document in their new book, The Two-Income Trap, once the average two-income family pays the mortgage, makes the car payments and pays taxes, health insurance and the day-care bills, it has less money for a rainy day than the single-income family of a generation ago.
And, of course, it has far less time for the kids and the housework. Meanwhile, families are competing furiously with one another for houses in decent school districts, thereby pushing up the cost of middle-class housing even further. The public school where the typical family ends up sending its kids is worse than a quarter-century ago (more kids per classroom, fewer after-school programs). And college is far less affordable (Pell Grants have been slashed and tuitions have skyrocketed).
If they had half a brain, then, all of the Democratic candidates would be proposing some variant on universal, affordable health insurance; a Marshall Plan of sorts for the nation's schools; a major increase in Pell Grants along with full tax deductions for college tuitions; and a working-family savings plan that matched, say, every $3 of private savings with one federal dollar. These aren't just smart policies; they're also smart politics. America's vast, anxious middle class is where most votes are.
But Democrats are doing no such thing. They aren't because repealing Bush's tax cut -- even repealing all of it, as Howard Dean and Dick Gephardt want to do -- wouldn't come close to generating the $200 billion or so a year that this full-throttled Democratic platform would require. It would barely finance Gephardt's meager health plan alone.
Yet America can surely afford to do what most Americans desperately need. As I mentioned, the American economy is twice as large now as it was a quarter-century ago. Divide up the gross domestic product by the total population -- including children and the elderly -- and you'll see that per capita GDP has grown from around $20,000 in 1977 to well over $30,000 today.
If the typical American family received $30,000 per family member, it would do just fine. But most families don't receive anything close. The lion's share of this great quarter-century expansion has gone to the wealthiest 5 percent, and most of this, to the top 1 percent. While typical families sink, the wealthiest 1 percent now pockets more than 17 percent of national income and owns about 40 percent of the wealth.
Here's the kicker: Even as America's wealthy have become vastly wealthier, they've been contributing a smaller and smaller percentage of their incomes to Uncle Sam. As Robert McIntyre pointed out in our last issue [see "Loophole-Consolidation Program," December 2003], the effective federal tax rate on the best-off 1 percent of Americans has dropped by 30 percent since 1977. The Bush tax cuts only make this shameful situation more disgraceful.
There's no good reason why Democrats should limit their vision of what America can accomplish to the amount of revenues generated by repealing the Bush tax cut, in whole or in part. Democratic candidates should be telling the American public the truth: If the wealthy paid the same share of their income in taxes today as they did in 1977, annual revenues to the federal government would jump by $200 billion. That's enough to finance a robust Democratic platform -- including good health care, good schools and a family nest egg -- for America's struggling middle class.
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