Nearly three decades ago, readers were jolted by a sensational series of articles by Inquirer reporters Donald L. Barlett and James B. Steele that documented how actions by Washington and Wall Street were systematically dismantling America’s middle class.
Supported by powerful human stories and data from government sources, America: What Went Wrong? explained why most Americans were losing ground financially. The series provoked an unprecedented public outpouring as crowds lined the streets around the Inquirer building to obtain reprints. Expanded into a bestselling book, the series figured in the 1992 presidential race as Bill Clinton waved the book at rallies and said he had been “profoundly influenced” by its conclusions.
Now Barlett and Steele have updated and expanded their work in a new edition showing how the destructive trends they identified in 1992 have reached crisis levels and created soaring income inequality.
This excerpt from their new book, America: What Went Wrong? The Crisis Deepens, summarizes their findings and tells what must be done to restore the American dream.
Working Americans who are bearing the brunt of the economic collapse from COVID-19 are in the grip of another crisis that threatens to escalate even after they return to work.
Long before the coronavirus wreaked havoc on the economy, Washington and Wall Street were wreaking havoc on the economic wellbeing of millions of American workers with policies that produced stagnate earnings, unaffordable health care and the prospect of an impoverished retirement.
This is no accident: It’s the direct result of 40 years of deliberate national policies that favor the few at the expense of the many. As a result, the middle class continues to shrink and the income gap between those at the top and everyone else has soared to record levels.
When we first wrote about the one-percenters – the wealthiest of the wealthy – their average annual income in 1992 was $464,800. By 2017, it had risen to $1.57 million, an increase of 238 percent. And that was just the average for those at the top. That year, a record number of individuals and families—20,223—reported income of $10 million or more.
Inequality begets inequality. Look at the 2017 Trump tax bill. After decades of tax cuts favoring the rich, along came the Tax Cuts and Jobs Act that gave them more. Those earning $1 million or more received an average tax cut of $64,428 a year. Middle class taxpayers earning $50,000 to $75,000 got $840. Overall, as we calculate, the top 1 percent as a class will receive half a trillion dollars in extra pocket money over the next decade.
Change can happen
It doesn’t have to be. There’s no law that says we as a nation have to keep sending big checks to people who don’t need the money instead of investing that money for the benefit of all.
How do we know this?
Because at other times in our history, our government—urged on by the people—has stepped forward to balance the rights of all Americans and to safeguard their health and economic security so that everyone could share in the promise of the American dream.
Yet for the past four decades, the prevailing philosophy of those who run the country has been to help the few, though they never express it that way. What they say—when questions of jobs, the economy, or health care come up—is “let the market decide what’s best for America. Keep government out.”
The word government has taken on an unsavory meaning over the past few decades thanks in part to Ronald Reagan, who in 1986 uttered the memorable phrase: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’”
In truth, the federal government has been a huge help to all Americans in the past by creating jobs and strengthening social stability— sparking railroad development in the 19th century, enacting Social Security in the 1930s, adopting the G.I. bill in the 1940s, starting Medicare in the 1960s, and funding research that led to the Internet. Americans have greatly benefited from the foresight of previous leaders who created government programs with the specific goal of helping people. Imagine how much more severe the Great Recession of 2008 would have been without the safety nets of Social Security and Medicare.
To reverse government policies and to shape new programs that will benefit all Americans will be very difficult. But our history tells us that it can be done; it’s been done before.
Once, Congress and the White House responded to the nation’s needs by enacting sweeping legislative and regulatory reforms. More often than not, they acted only after events had pushed the country to the edge of crisis—or beyond. Even then, opposition was intense.
So it was in 1906. That was a time when Americans were routinely swindled—and often died—when they bought and consumed rotten meat, foods packaged in poisoned preservatives and patent medicines spiked with narcotics. Despite fierce opposition in Congress, lawmakers passed the Pure Food and Drug Act of 1906 only after substantial pressure by reform-minded citizens and lawmakers. President Theodore Roosevelt described its importance:
“The enactment of a pure food law was a recognition of the fact that the public welfare outweighs the right to private gain, and that no man may poison the people for his private profit.”
Congress responded again in 1913. That was when federal revenue was derived largely from the tariff—a tax added to imported goods—which, as the House Ways and Means Committee concluded, was “a system of taxation which makes the rich richer and the poor poorer.”
To correct the growing imbalance, Congress took up legislation calling for an income tax. Again there was intense opposition in Washington. Some charged that the income tax was a communist plot. But once more, as a result of pressure by reform-minded citizens and politicians, Congress responded, passing the Revenue Act of 1913. “Under this bill a man will be taxed according to his ability to pay,” declared Clyde H. Tavenner, a Democratic congressman from Illinois. “If he has a small income he will pay a small tax, and if he has a large income he will pay a large tax.”
Congress responded again in 1933 when many Americans were struggling to survive the Great Depression. Public anger was rising over tales of wealthy citizens who peddled unsound stocks, encouraged speculation with borrowed money and cut special stock deals for their friends. After years of pressure by reform-minded citizens and lawmakers, Congress passed the Securities Act of 1933. President Franklin D. Roosevelt described its importance:
“The Act is thus intended to correct some of the evils which have been so glaringly revealed in the private exploitation of the public’s money. This law and its effective administration are steps to restore some old-fashioned standards of rectitude. Without such an ethical foundation, economic well-being cannot be achieved.”
Throughout American history, whenever excesses within the economy resulted in private gain for the few and hardships for the many, Congress and the White House responded -- usually after interminable delays. But they responded.
Until the 1980s. For the past 40 years the two branches of government have been in legislative gridlock. Except for two relatively modest steps — enactment of a tax on upper-income taxpayers under President Bill Clinton in 1994 and adoption of Obamacare in 2010 to aid the uninsured — no significant legislation has been adopted specifically aimed to bolster American workers.
The government rule book has become a catalog of special-interest provisions and favoritism to the rich. It will be reversed only by citizen action to bring about broad legislative programs that are designed to correct structural imbalances built into the economy over many years.
Changes like these are a starting point:
Tax rates should be raised on both the wealthiest Americans and large corporations. For individuals, the top rate should be increased from the current 37 percent to at least 40 percent for the upper 5 percent of taxpayers, and higher for the wealthiest Americans, those earning $1 million a year or more.
Capital gains income—the money derived from the sale of stocks, bonds and other assets—should be taxed at the same rate as a working person’s wages. This is one of the most lucrative tax breaks for the very wealthy, but there is no justification for taxing a worker’s wages at a higher rate than a billionaire’s profits from selling stocks and bonds.
For corporations, whose tax rate was lowered to 21 percent in the 2017 Trump tax bill, Congress should increase the rate to 30 percent and eliminate or drastically reduce the value of certain highly prized deductions such as the ability to write off interest on borrowed money.
Some day the U.S. will have a single-payer health-care system in which one agency will insure basic health care coverage for every American, a plan similar to Medicare, which covers everyone 65 years and older. Virtually every study of health-care costs shows that a single-payer system would be the most efficient and least costly. Yet despite its advantages, a single-payer system isn’t likely to happen any time soon without forceful citizen pressure to overcome the power of the health-care lobby and its misinformation campaign about how the system would work.
What should be done? In the immediate future, a so-called public option plan seems to us the most politically feasible course until we ultimately adopt a single-payer system. With a public option, Congress should tackle a long list of other health-care issues from “surprise” medical bills to soaring drug prices. Congress should at least authorize Medicare to negotiate with the pharmaceutical industry to obtain lower prices for prescription drugs.
Labor department data shows that wage growth remains sluggish even with low unemployment. Many workers compensate by holding more than one job. We need to invest in infrastructure, new industries and research to stimulate good-paying jobs.
We need to raise the federal minimum wage which hasn’t been increased since 2009 and which was 35 percent lower in 2019 than in 1968, adjusted for inflation. All workers would benefit greatly from another national benefit: universal child care.
On trade policy, the source of massive losses in manufacturing jobs for American workers, President Trump has initiated a tougher stance than any of his predecessors, but rather than targeting one country—China—and bringing on board other industrialized nations that have also suffered because of China’s trade policies, he’s gone it alone, and the gains he’s eked out of China in the trade war so far are minimal.
This is one of middle-class America’s gravest challenges. Pensions now cover only 2 percent of employed workers in the private sector– down from nearly 30 percent in 1980. Most working Americans can’t save enough for their retirement because they need every penny they earn to meet their basic needs. The lack of good-paying jobs for wage earners has intensified the problem.
The most immediate way to help middle-class Americans would be to increase monthly Social Security payments for those who most need it. As of 2019, Social Security is the only retirement income for 40 percent of older Americans. Unless their monthly payment is increased, they will live their final years in poverty.
As governments have reduced their share of financing public higher education, students have been forced to borrow. We must find ways to help the 40 million-plus Americans who are burdened by life-altering indebtedness. First, we need to restore strong public oversight to the operation of this multi-billion-dollar-a-year venture. For years, this program has been operated largely by private contractors
Many approaches could be used to ease the burden. One would be to make former students responsible for only the money they actually borrowed, minus interest payments and in some cases fines. Another might be total forgiveness for those most in need.
There is no doubt in our minds that a majority of Americans would support many of these actions. Just as they would support efforts to enact legislation to end tax subsidies for companies that eliminate jobs in the United States and create jobs offshore. Or to impose a capital gains tax on wealthy estates. Or to impose an excise tax on the sales of stocks and bonds.
These are just some of the reforms that would help restore balance to the system.
A fresh approach
What is clear is that we need a new way of thinking and a fresh approach to rescue America’s middle class. The solution isn’t a modest one-time check from the U.S. Treasury, no matter how welcome any additional money might be to financially strapped Americans.
At the heart of this fresh approach is a structural change in the way America forms public policy. We must face the fact that the private market alone cannot solve the problems undermining working Americans —that, in fact, it is that unregulated market itself that has caused so much of the distress. The crisis of the middle class cries out for bold action by government to bolster opportunity and restore a sense of optimism and strong citizen pressure to make that happen.
Nothing has driven home the need for a radical change in our approach to government more than the coronavirus crisis. Lacking any governmental oversight, the nation was totally unprepared for the logistical challenge that mitigating the pandemic would require, as shortages of masks, protective clothing and test kits reached epidemic proportions along with the virus itself.
The breakdown in health care was a direct result of the philosophy the U. S. has pursued for the last 40 years of taking a hands-off position on matters of the economy, and the economic wellbeing of citizens, under the mistaken notion that the market will deliver prosperity to everyone. It hasn’t and it won’t.
To deal with this, the solutions need to be long-term: We must first conceive and then enact new policies, and then stick with them for years to come. Only then will most Americans have the economic security in place to fulfill the promise of the American dream.
Powerful lobbies fiercely oppose any change that would erode their privileges, deploying armies of paid agents and political-action committees to protect their interests. Yet the power that average citizens possess can be decisive if wielded wisely.
Over the years many Americans have written to us to offer solutions to the crisis affecting the middle class. Many displayed a clearer grasp of the problems confronting the country than the rulemakers in Washington. And many saw reason for hope, rather than despair. As one reader concluded:
“To the extent that federal policy, rather than impersonal economic factors, is responsible for the hardships our citizens are suffering, there is reason to hope for the better ... We make those policies through our elected representatives. What we make, we can unmake.”
Donald L. Barlett and James B. Steele are the authors of America: What Went Wrong? The Crisis Deepens. Mission Point Press, $16.95. Also available at your local bookstore and on Amazon in print or ebook. Barlettandsteele.com