Inequality Is Our Economy’s Core Problem–That’s Why Taxes Matter

Closing the income and wealth gaps isn't an ideal, as the president suggests. It's the whole point.

By Kai Wright Dec 09, 2010

The central argument for passing the tax cut package–or, the "Obama-McConnell plan," as Mary Landrieu has labeled it–is this: The deal is just gonna get a lot worse in January. Reports suggest the White House has won a number of Democratic converts in the Senate with this argument. Senators point to optimistic analyses of the deal from a couple of respected liberal economists, in particular the [Center for Budget Policy and Priorities’ Robert Greenstein]( He says the package is both better than expected and better than it’ll ever get: >Congress should approve this package — its rejection will likely lead to a more problematic package that does less for middle- and low-income workers and less for the economy. Then, in 2012, when the economy should be stronger, the President should make clear he will veto any legislation to extend either the high-end tax cuts or the weakening of the estate tax beyond the estate-tax parameters that were in place in 2009, and he should take that case to the country. Greenstein and the White House economic team share an assumption: That the first stimulus is actually going to fix things. They see themselves locking down a second, slightly more modest stimulus in exchange for a strategic retreat on the larger–and to the president, more abstract–battle over taxes. The retreat, they brag, is really a trap for Republicans; they’ll turn and attack on taxes when the recovery is complete and they’ve got a stronger position. This perspective dismisses at least two deeply important realities. The first is that growth and economic recovery aren’t the same thing. Thus far, our "recovery" is on track to, at best, reset the old economic order that led to this collapse in the first place. Month after month, new jobs data show people aren’t getting work, or that the work they’re getting isn’t enough. And each time, pundits spiral into a collective round of frustrated wonder. Isn’t the economy growing again? Isn’t the recession officially over? Yes, it is for a small, thriving section of the economy, but not for everyone else. And it won’t be until we deal meaningfully with income and wealth inequality. The tax cut debate is so crucial because it is goes to the heart of our debate over what kind of economy we are building. Closing history’s largest income disparity is not an "ideal," as the president suggests; it’s the whole point. [Robert Reich makes this argument best]( >Americans want to know what happened to the economy and how to fix it. At least Republicans have a story – the same one they’ve been flogging for thirty years. The bad economy is big government’s fault and the solution is to shrink government. Here’s the real story. For three decades, an increasing share of the benefits of economic growth have gone to the top 1 percent. Thirty years ago, the top got 9 percent of total income. Now they take in almost a quarter. Meanwhile, the earnings of the typical worker have barely budged. > >The vast middle class no longer has the purchasing power to keep the economy going. (The rich spend a much lower portion of their incomes.) The crisis was averted before now only because middle-class families found ways to keep spending more than they took in – by women going into paid work, by working longer hours, and finally by using their homes as collateral to borrow. But when the housing bubble burst, the game was up. So until we find a way for middle- and working-class families to participate in the economy–rather than being sources of strip-mined wealth for Wall Street–we will not recover. Not now, and not by 2012. When the president turns to make his triumphant counterattack, he will find that the same frustrated, out of work independent voters who abandoned the Democrats this year will do so again. And the same frustrated, out of work and dispirited progressives who stayed home from the polls will do so again as well. Because the economy, for them, will not have changed meaningfully. How can we make it change? Not with the scale of investments Obama has won in exchange for abandoning a decades-long fight to defend government’s role as moderator in a sustainable economy. Again to Reich: >The solution is to reorganize the economy so the benefits of growth are more widely shared. Exempt the first $20,000 of income from payroll taxes, and apply payroll taxes to incomes over $250,000. Extend Medicare to all. Extend the Earned Income Tax Credit all the way up through families earning $50,000. Make higher education free to families that now can’t afford it. Rehire teachers. Repair and rebuild our infrastructure. Create a new WPA to put the unemployed back to work. No, none of those things are on the table today. But that’s because the president never fought to put any of them there. He took his 70 percent approval ratings and the power of crisis management and squandered it on cultivating his reputation as America’s reconciliation counselor. So, no, there aren’t a lot of good options on the Hill anymore. And now, having spent two years back peddling us all into this untenable position, the White House demands that progressives understand there’s no choice but further back peddle. We’ll fight again in 2012, he says, just in time for my reelection bid. Which brings us to the second point that the White House and its new liberal backers overlook: A whole lot of America doesn’t have two years to spare. We are, in fact, well past the fight-or-die point for many communities–particularly black and brown ones. A third of black young people are out of work; roughly 15 percent of black workers overall are jobless. These are the official, more conservative numbers. Tally those who long ago gave up trying to work, who took part-time jobs or below living-wage pay, and the numbers go up. We have [record poverty]( and record hunger. Kids are being asked to learn while sleeping on aunties’ couches and going hungry. College students face lifelong depressions in their earning power, a fact that will [further grow the wealth gap]( Studies show that [health problems are spiraling up]( as economic problems drag on, a fact that will further cripple families’ earning potential and undermine the health reforms Congress managed. We don’t have two years for a strategic retreat. The tax cut package will almost certainly become law. House Democrats are fighting what is likely a losing and symbolic battle today. But their dissent is nonetheless crucial. Progressives have allowed the White House to kick the core questions about fixing our economy down the road for two years. They allowed a foreclosure plan that did little more than prop up a mortgage servicing industry that is better off dead. They went along as the Treasury Department let the banks off the hook without any fundamental changes to the way they do business. They swallowed health care reform that, yes, moves the ball but does not address the core question of cost. At some point, there must be a resounding, No. Any realistic assessment suggests conservatives will begin in January a hard and sustained fight to cement the type of economic order that brought us to this point. Anyone in Washington seeking a sustainable, just economy must be ready to meet that fight. The question for the president is which side he’s going to be on.