Higher Education, Income Inequality, Taxes

Eat or We Both Starve

My weekly column from the Lewiston (Idaho) Tribune.

On an out of the way country road a few miles outside of Oxford, Mississippi you’ll find a place that claims to serve “the best catfish in the South.” The Taylor Grocery, actually a general store turned restaurant with a rusty gas pump out front that once promised “ethyl,” is the kind of place where the chicken is fried, the comfort food is red beans and rice and the pork chop comes covered in gravy. 

At Taylor Grocery you can have sweet tea, soda and coffee. If you want a beer with dinner you bring a couple bottles in a paper sack, be discreet about it and the waitress will bring you a glass – made of plastic. 

I certainly remember the rib sticking food at the place, but also remember the sign out front with a simple message: Eat or We Both Starve. 

Taylor Grocery near Oxford, Mississippi

That sign in front of a shabby looking restaurant in the hardwood and pine forest of northern Mississippi is just about the perfect metaphor for what should be the central debate in American politics at the moment. The American middle class is a sad hollowed out husk of my parent’s generation. Lost in the economic turmoil, resentment and downright despair of millions of Americans is the notion that a robust, expanding middle class is what really makes a capitalist system function. The guy pushing fried oysters in Taylor, Mississippi, or selling cars in Reno or peddling new dishwashers in Clarkston doesn’t eat the farmer or schoolteacher or carpenter can’t afford to buy. We all starve.

The Disappearing Middle Class…

Neither by mother or dad went to college, but they certainly saw to it that my brother and I did. They saw, properly so, that education was our society’s great advancer. They had every reason to believe, like their parents before them, that their kids would enjoy the American economic dream – a home, a car, an education and a decent job that would empower a whole new generation. We once considered that the American dream, back in the day when my dad could co-sign a $2,000 college loan that I could actually afford to repay. 

But the stark reality is that the American dream for many fellow citizens is more illusion than expectation and there is evidence everywhere you look. The New York Federal Reserve reported recently that “a record 7 million Americans are 90 days or more behind” on their car payments, a metric that is genuinely worrying to many watchers of the economy. Many Americans are entirely dependent upon their automobile to get to work and they tend to make the car payment before anything else. That so many are so far behind is a stunner.

At the same time student-loan delinquency rates are going through the roof, more than $166 billion in delinquent loans in the fourth quarter of 2018 alone. As Bloomberg reports the total number of delinquent student loans is at a record $1.46 trillion.

Meanwhile, the prospects of a young American, even one with a good education, landing a job that will pay for the American dream are evaporating. In an article that manages to be both poignant and angry, Anne Helen Petersen wrote recently about why so many young Americans feel cheated by the enormous debt they have incurred to get a degree that then can’t produce a salary they can live on.  

“The problem is the growing certainty that you were sold a false bill of goods about the immeasurable value of higher education,” Peterson wrote in BuzzFeed, “and that’ll you’ll be forever paying down the cost of a broken dream.”

There are dozens of realistic policy proposals to address these issues, including more focus on the affordability of community colleges and loan forgiveness programs that actually work. Peterson’s reporting confirms that many do not work and thousands of young people labor for years to make even a dent in their loan principal, let alone get to a level of financial security that allows a real pursuit of the dream. 

The recent GOP tax bill has actually exacerbated the problem with graduate students who receive tuition breaks now required to treat those benefits as income. What kind of society taxes a young person for trying to get a master’s degree? 

Party Like it’s 1929…

Meanwhile, the rich get richer and the middle class gets delinquency notices. University of California economist Gabriel Zucman recently published a paper on the continuing and dramatic growth in income inequality, another feature made worse by the Trump-Republican tax bill that was so enthusiastically supported by Idaho’s congressional delegation. 

“U.S. wealth concentration has followed a marked U-shaped evolution of the last century,” Zucman writes. “It was high in the 1910s and 1920s … and the top 0.1% wealth share peaked at close to 25% in 1929.” The Great Depression stopped the increase and “after a period of remarkable stability in the 1950s and 1960s, the top 0.1% wealth share reached its low-water mark in the 1970s.” Now, “U.S. wealth concentration seems to have returned to levels last seen during the Roaring Twenties.” 

Source: Economist Emmanuel Saez, UC Berkeley

The three wealthiest Americans – Jeff Bezos, Bill Gates and Warren Buffett – collectively have more wealth than the bottom 50% of the U.S. population, while about a fifth of Americans “have zero or negative net worth.” The only other places in the world were the wealth held by the super rich is as skewed are China and Russia. We truly are making oligarchs great again, while the folks who want to buy the appliances, the houses and hope to send their kids to school grow ever more marginalized. 

The hollowing out of the once great American middle class, the loss of old-style manufacturing jobs, the decline of organized labor as a force for economic stability and worker protections, the skyrocketing cost of higher education and wage stagnation represent a crisis for American capitalism and politics. If fellow Americans aren’t reaping more rewards of the one-time American dream, we are all eventually going to starve. 

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Economy, Federal Budget, Taxes

Old GOP Con Runs out of Steam…

When Oregon Republican Congressman Greg Walden went to Bend, Oregon recently for his first town hall meeting there in two years he came armed with what he must have thought were two sure fire applause lines. 

Walden, a widely respected Republican and until Democrats recaptured the House of Representatives last November the chairman of Energy and Commerce Committee, is a lot like Idaho Congressman Mike Simpson. They were among a tiny handful of Republican House members who split with their party and the president on the issue of the recent government shutdown. When Walden reminded 400 of his constituents gathered in a central Oregon high school auditorium that he had voted with Democrats to reopen the government he got a healthy round of applause. 

Oregon GOP Congressman Greg Walden at a town hall in Bend in January. (OPB photo)

But when Walden tried to pivot to a key GOP talking point it didn’t go so well. “So, tax cuts,” Walden said, ”It is no secret I’ve supported them. And I think they’ve had a strong effect on the economy—” but here the crowd took over, interrupting the congressman, as Oregon Public Broadcasting recorded, with “a chorus of boos and heckles.”

Walden, in Congress since 1998, was left to say: “OK, let’s try and be respectful.” The old, sure fire GOP applause line of “every tax cut is good for you” may finally have reached its sell by date. It just doesn’t seem to be working for Republicans in part because they have handed huge windfalls – again – to the super wealthy and big corporations, windfalls that have directly contributed to skyrocketing deficits and deepened worry about the strength of the economy. 

The prediction by virtually every Republican elected official that the $1.5 trillion tax cut would spur investment, job growth and wages has turned out to be just a political talking point rather than some kind of economic miracle. “There hasn’t been a huge surge in response to tax reform,” said Eric Zwick, a professor at the University of Chicago Booth School of Business. What did boom were corporate stock buy backs. 

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, told CNN Business, that he saw “no evidence at all” that the tax cuts have lifted business spending above what would have happened anyway.

A survey of American businesses published this week by the National Association of Business Economics(NABE) found that 84 percent of businesses surveyed indicated that the big tax cuts had “not caused their firms to change hiring or investment plans.” 

Meanwhile, the deficit grows and, no, the tax cuts don’t pay for themselves. The Congressional Budget Office (CBO) estimates a $900 billion deficit this year, growing soon to $1 trillion and reaching that number faster than CBO had been predicting. 

Financial writer Jim Tankersley put an exclamation point on the trend recently when he noted, “If growth fades in the coming years — as many economists believe it will — the cuts could exacerbate the deficit even more.”

It is a complicated and at times very cynical story about how cutting taxes, particularly for the most wealthy, became a bedrock principle of Republican politics. Republicans have beaten Democrats over the head with “tax and spend” labels at least since the 1970s, but it wasn’t always so. Dwight Eisenhower actually believed in rather than just talked about balancing budgets and he insisted that the government had to have the revenue to keep the public books in the black. 

More recently rank and file Republicans – the Idaho delegation comes to mind – has mastered the political jujitsu of advocating huge tax cuts for those at the top of the economy, while preaching the need for balancing the budget. And now that the GOP has a president who seems to care less about fiscal responsibility and has lost control of one house of Congress Republicans are against talking about balanced budget amendments. 

Senators Mike Lee of Utah and Charles Grassley of Iowa, both of whom voted for the tax cuts, actually had the hutzpah to introduce balanced budget legislation recently. Lee said, presumably with a straight face, “As our federal debt continues to rise at an alarming rate, the least we can do is require the federal government to not spend more money than it has at its disposal.”

One reason the old tax cut then deficit handwringing game has worked so well for Republicans is that the tax code is complicated, indeed downright eye glazing to many. It’s even difficult for many CPAs to navigate the exemptions and loopholes, but the simple language of cutting taxes is easily understood, except perhaps when the fuzzy logic and dodgy math finally loses its political power. 

Before last November’s mid-term election Republicans knew from their own polling that they had lost the messaging battle over their tax cut. Bloomberg News obtained internal GOP survey results that confirmed – by a 2-to-1 margin — 61 percent to 30 percent — that voters saw through the hype and knew that “large corporations and rich Americans” benefited over  “middle class families.” That explains why Greg Walden got hooted down at his town hall recently and why you no longer hear Mike Crapo, Jim Risch or Simpson say much about the “signature” accomplishment of the first two years of the Trump Administration.

Graphic: Institute of Taxation and Economic Policy

More and more the tax debate in American politics is going to be shaped by fundamental issues that voters do seem to understand. Economic policy, including repeated tax cutting for the very wealthy, has for the last generation contributed to a hollowing out of the middle class, a flat lining of income growth, creating vast and growing disparity in wealth and stifling opportunity.

In another recent survey a sizeable majority of Americans now say that “unfairness in the economic system that favors the wealthy” is a bigger problem than “over-regulation of the free market that interferes with growth and prosperity” Among young Americans that belief is even more surely held. 

Ironically, by embracing a candidate who refused to release his own tax returns and gleefully oversold his tax cut, Republicans may have finally lost the political advantage they’ve held on tax issues since the Reagan years. It was quite a con while it lasted. 

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