Of Our Time: My Dinner with Bill

ersonally, it doesn't bother me at all that Bill Gates's net worth
($46 billion) is larger than the combined net worth of the bottom 40 percent of
American households ($37.8 billion, excluding their cars). Several years ago I
had dinner with Bill Gates and about a dozen other people at a nicely appointed
home in the Cleveland Park district of Washington. I had been invited by a
former member of Congress, whom I had known as a friend for a number of years.
Before dinner, I exchanged a few words with Gates. I asked him what he thought
about Newt Gingrich's proposal to give every poor child in America a personal
computer. He said it would cost a lot of money, but would be worth it. I was
tempted to ask whether it would cost more than 10 percent of his net worth, but
restrained myself. After that brief conversation, Gates and I sat down at
opposite ends of the charming dining room, and said nothing further to one
another until we shook hands goodbye. A month later I received a bill for $75,
along with a note from the former congressman explaining that since Microsoft
had paid for the dinner, I was obliged under government ethics laws to pay my
share. It did not bother me one bit to send $75 to Bill Gates for a meal that I
had been led to believe was a purely social event paid for by my friend, the
former member of Congress. I could afford it, and I'm grateful for Bill Gates's
vigilance in adhering both to the letter and to the spirit of our government's
ethics laws.

But the episode got me wondering. There are a lot of basic things that
America still can't seem to afford to do—but other nations accomplish—like
giving all children a decent education and providing all citizens with adequate
health care, although America is now richer than it has ever been, the richest
nation in the history of the world. Not only is the economy in splendid shape,
but the nation's overall wealth has exploded by 30 percent in just the last
fifteen years. Yet when it comes to basics, we seem to suffer a permanent case
of performance anxiety. Every time we approach the point where a bolder vision
seems possible, we decide that we can't afford it quite yet. When the Cold War
officially ended in 1989, we briefly debated how to spend the so-called "peace
dividend," but then the nation decided that the more prudent course was to keep
most of our military intact, should it be needed. "We have more will than
wallet," intoned George Bush, ruefully. When Democrats subsequently took over
the White House in 1993, the President and Democratic Congress concluded that
before we did another thing the budget deficit had to be reduced, as a
percentage of the nation's economy. It then totaled 4.1 percent of gross
domestic product, and we resolved to cut that by half before embarking on the
agenda that Bill Clinton had been elected on. The deficit waned, but the bar was
lifted again in 1995 when a Republican Congress (backed by several noted
Democrats) threatened a constitutional amendment to balance the budget. In order
to block such an attempt, the larger agenda was put off until the budget was in
fact balanced. Now it is 1998 and the budget has been balanced. There are even
surpluses. But it appears that the bar has been lifted yet again: we must first
deal with Social Security.

emocrats and liberals were, by and large, encouraged by the proposals
that the President announced in his State of the Union address. True, many of
the ideas are rather meager in comparison with the size of any of the problems
they seek to address. Medicare expansion, for example, will reach no more than
300,000 early retirees and laid-off workers over the age of 55, out of three
million in this group, which itself is a small portion of the 41 million
Americans lacking health care. But, it is argued, these proposals are at least a
beginning. True, most of the new initiatives are in aid of people earning
middle-class wages rather than of the working class and the poor. But, it is
said, the President at least signaled something of a return to the themes with
which he began his presidency, and perhaps they can be built upon in future
years. And assuming that Republicans fall into the trap of opposing these
popular ideas, he has given Democrats a platform for their 1998 campaigns.

Yet to focus on the proposals themselves misses a deeply troubling aspect.
The President has offered no larger vision for how the nation might eventually
afford to do what's needed. To the contrary, the President's proposals depend
for their financing on proceeds from a hoped-for tax on tobacco, and from
various "loophole closers" in the tax code, all of which will be fought over in
Congress. By refusing to use budget surpluses for anything other than saving
Social Security, the President has raised the bar so high as to render any
larger agenda almost unattainable. The public has been misled into believing
that the wealthiest nation in the history of the world cannot afford to address
the most basic needs of its citizens. "Social Security First" implies that
Social Security is in grave danger, and that only two possible things come
second: eliminating the debt or cutting taxes. All of this is dead wrong.

Social Security is not endangered. According to projections from the actuary
of the Social Security trust fund, Social Security revenues (plus interest) will
exceed Social Security expenditures through the year 2018, at which point the
fund will begin to draw itself down. By 2019, when the great wave of postwar
boomers begins to hit the shore of retirement, expenditures will begin to exceed
income. Without "corrective actions" (in the words of the actuary), by 2029 the
fund will be unable to pay all its obligations—unless, of course, the Treasury
simply issues more debt to cover them.

This is incorrect. As a former trustee of the Social Security trust fund, I
can tell you that the actuary's projection (made, by the way, before anyone
expected the budget to be balanced by 1998) is based on the wildly pessimistic
assumption that the economy will grow only 1.8 percent annually over the next
three decades. Crank the economy up just a bit, to a more realistic 2.4 percent
a year (what the actuary gloomily termed the "high option" projection), and the
fund is flush for the next 75 years. Even if we have several recessions along
the way, it's highly doubtful that the economy will grow any slower, on average.
Productivity gains alone are likely to exceed 1.5 percent per annum, not
counting all the gains that go unmeasured; immigration will surely make up for
any slowdown in population growth. And if lower wage earners were ever to get a
larger share of the economic pie, of course, Social Security revenues would be
much higher. It should not go unnoticed that 2.4 percent growth per year is
exactly the projection used by the White House in its new budget, anticipating
costs and revenues over the next five years.

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A six-tenths of 1 percent difference between the official projection and the
"high option" may not sound like much, but compound it over several decades and
you're talking real money. To be sure, we may wish to give ourselves an extra
margin for error by making small changes in the formulas for paying into or
taking out of the fund-perhaps taxing a bit more of what's taken out by high-income
retirees—but this is no big deal. It's certainly no bar to using current
and projected budget surpluses for the unfinished agenda.

The President's "Social Security First" campaign is also an open invitation
to those who wish to argue that we must use any budget surpluses in future years
to eliminate the federal debt. Social Security is, of course, a pay-as-you-go
system, so that any effort to "shore up" the trust fund is, in effect, an effort
to pay down the debt. This is what's known as a slippery slope. Once you concede
that paying down the debt is a good thing to do, there's no obvious stopping
place. Why not apply every penny of surplus in future years to this noble
objective? Conservative think tanks, editorial writers, followers of Ross Perot,
Concord Coalitioners, and all other advocates of public austerity and private
profligacy will happily slide down this hill.

Saner voices should be clear: public debt is not necessarily bad. Not only
may debt occasionally be useful for stabilizing the economy (in the long run,
John Maynard Keynes is not dead), but its proceeds might be used in such a way
as to hasten economic growth. As the President argued early in his
administration (but hasn't since), public investment in education,
infrastructure, and basic research are as important to future growth as is
private investment. Families and businesses borrow in order to invest all the
time. As long as the economy grows faster than the national debt, its exact size
isn't worrisome. And that is precisely what has been occurring. In 1997, the
federal debt totaled about 50 percent of the nation's gross domestic product
(GDP). This year, it will be below that even if we spend every penny of the
surplus, and it will continue to drop if the budget is balanced. If we invested
the surplus in our people, it would drop even more quickly. Economic growth is
the key, and the way to grow faster is to invest—privately and publicly.

t is worth noting, by the way, that federal investments in education,
infrastructure, and research continue to fall behind. [See Dean Baker, "Invest
."] They represented 2.7 percent of GDP in 1981, had fallen to 1.8
percent by the time Ronald Reagan left office in 1988, and then remained flat
until 1995, when they began dropping again. The trend is well documented in a
table in the back of the annual budget books distributed by the Government
Printing Office. Even if enacted, the President's new budget initiatives would
notch public investment up only a bit.

The austerity crowd will meet its match in the tax cutters, whose members
include most Republicans now holding office or harboring political ambition. Tax
cuts are wildly popular, of course, especially among middle- and lower-income
Americans whose wages have barely edged upward during this economic boom.
"Social Security First" has trumped the Republican tax cutters, temporarily.
When the choice is between cutting taxes and saving Social Security, the latter
wins. But for the longer term, Republicans have found their platform, if not for
1998 then surely for 2000 and beyond. Now that the budget is balanced, they will
continue to clamor to cut taxes, pushing various "flat" variants that are likely
to favor the wealthy. "Social Security First" is, at best, a momentary fix. As
soon as Social Security is deemed to be out of danger, the tax cutters will
compete for floor space with the debt cutters.

Despite the extraordinary surge in the nation's wealth, then, no room has
been left for the large unfinished agenda of America. No broad argument has been
made for how the nation can afford to accomplish it, even when we can most
easily afford to do so. We are facing the millennium without a public philosophy
about what we can achieve together in the next century, because the current
argument has been framed so narrowly as to exclude any such possibility: we must
first save Social Security, then pay down the debt or cut taxes. Yet we can save
Social Security, don't need to pay down the debt, can cut taxes on the middle
and working classes, and can still afford to do what a great nation must do for
all its people.

his brings me back to my $75 dinner with Bill Gates. Most of the
surge in wealth has, of course, gone to people at the top. Professor Edward N.
Wolff of New York University, who has made a specialty out of analyzing the
Federal Reserve Board's tri-annual Survey of Consumer Finances, has just
completed his analysis of the board's 1995 survey—released in July 1997. Wolff
found that median wealth (the wealth of the household in the middle of the
distribution) was about 10 percent lower in 1995 than in 1983. By contrast, the
top 1 percent of families became much wealthier: by 1995 they owned almost 39
percent of the total household wealth of the nation. Excluding the value of
homes, they owned 47 percent. The top fifth owned 93 percent.

In the three years since the survey was completed, the stock market has
surged 30 percent annually, which suggests that wealth is even more concentrated
than it was in 1995. The vast majority of Americans owned little or no stock in
1995 because they didn't have enough income to buy into the market, let alone
save. According to the same Federal Reserve survey, the richest 1 percent held
half of all outstanding stock and trust equity, almost two-thirds of financial
securities, and more than two-thirds of business equity. The top 10 percent
owned 82 percent, including indirect ownership through pensions and mutual
funds. We can assume that these proportions have remained roughly the same since
then, because the median wage has risen only slightly and most Americans still
have little or no discretionary savings. (A recent New York Times lead
story—"Share of Wealth in Stock Holdings Hits 50-Year High"—was misleading in
this respect: it is not that wealth has become more widely "shared," but simply
that those who have it are now choosing to put a larger "share" of it into

Bill Gates is not quite representative of the richest 1 percent, but the
recent accumulation of wealth at the top has few parallels in American history.
Perhaps the closest analogies are the Gilded Age and the Roaring Twenties. The
rich are paying more taxes than ever before, to be sure, but they are paying
less in taxes as a percentage of their total wealth, or even of their total
incomes, than at any time in the postwar era. All levels of government have
shifted their sources of revenue in recent years from income taxes, property
taxes, estate taxes, and taxes on capital gains (all of which tend to be
progressive) to payroll taxes and taxes on sales (which tend to be regressive).
As a result, the working middle class (families earning $20,000 to $50,000 a
year) have been squeezed the hardest. In a real sense, they can't afford to do

America can afford to do more, because the rich have grown breathlessly
wealthier, and they can afford to do more. A progressive tax on wealth should
not be beyond imagination. "Soak the rich!" isn't precisely the banner I would
choose, because it connotes blame, and there is no reason to blame anyone for
becoming rich. I rather liked Bill Gates in the few moments I talked with him,
for the price of $75. And no one would get soaked; this isn't a zero-sum game in
which the rich lose and the middle and below win. A better-educated and
healthier society is in everyone's interest. Tie a progressive wealth tax to tax
cuts for middle- and lower-income earners, to an education trust fund to rebuild
schools and attract the very best talent to teaching, to universal health care
(with choice of doctor, of course). Perhaps consider a "grubstake" of $25,000
for every young person who finishes high school, to be spent on additional
education or invested. The public would get a twofer: an incentive for young
people to finish high school, and a whole new generation of capitalists.

There will be doubters, of course, even among loyal American Prospect
readers. Impossible, you may say; the wealthy would sooner take their fortunes
out of America than be subject to a wealth tax. They will bankroll politicians
that oppose it. The right will claim it's confiscatory. The news media will
object because their big advertisers will be against it. Middle-income Americans
will oppose it because they aspire to become wealthy themselves. No one believes
in government anymore anyway. And so on. My retort: Let's try, and

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