What’s the number one threat to the continued success of the U.S. and international economies? It’s the growing inequality of wealth and income, particularly in the United States.
And that’s not just according to Bernie Sanders or Elizabeth Warren. A recent analysis by Deutsche Bank reaches the very same conclusion— and with good reason.
Economies work best when everyone has an opportunity to take part and be successful. But that’s increasingly difficult when so much of the new wealth that the economy creates winds up in the hands of those at the very top.
The supply-side theory behind the latest round of Republican tax cuts for corporations and the rich has, once again, proved the point. As the monthly economic data demonstrated yet again, the Republican supply-siders completely misunderstand how the economy works. They promised that slashing the corporate tax rate from 35 percent to 21 percent would prompt businesses to invest more in U.S. industry. That investment would create more jobs and incomes, and generate more, not less, revenue to the government.
That, of course, is what supply-siders always say. And while they are invariably proven wrong, the data from the most recent round of tax cuts is even starker than usual. Despite the biggest corporate tax cuts in history, weak business investment has been one of biggest drags on economic growth. While the economy’s service sector, which is fueled mostly by consumer demand, has remained relatively strong, the manufacturing sector, which often drives much business investment, is already in recession and shedding jobs. In fact, the sector lost 36,000 jobs in October, according to data released by the Bureau of Labor Statistics earlier this month.
And you can add the roughly three dozen permanent job cuts announced this week by both Minntac and Keetac to the growing list.
The tax cuts that President Trump sold as good for workers are putting much more money in the hands of top corporate executives, but new job creation in 2019 is running well behind the pace of the last year of the Obama administration.
And all those new federal revenues the supply-siders promised? Sorry, but revenues have fallen, as every sensible economist predicted, and the U.S. deficit climbed to $984 billion in fiscal year 2019, which ended Sept. 30. That’s an all-time record budget deficit outside of a period of economic calamity.
What’s still fueling the economy? Consumers, which has been the case for decades in the U.S. If you want to build an economy that works for average Americans, you need to put more money in the hands of workers, not their bosses. And you don’t need tax cuts to do that. You put more money in the hands of workers by raising taxes on those at the top and using those resources to invest in the country. That includes investing in a national infrastructure that is increasingly falling into Third World status in many parts of the U.S. That means putting real resources into improving economic conditions in rural regions and small towns. That means making sure that people aren’t discouraged from pursuing success in fulfilling careers by the burden of massive debt due to education or medical costs. These burdens are a major reason that social mobility in the U.S. is now among the lowest among developed countries. It means passing laws that make it much easier for workers to unionize to push for a bigger slice of the pie.
It’s no coincidence that the high point of the American middle class came at a time when the country was making enormous investments in infrastructure, when unionized employees made up just over a third of the workforce, and the top marginal tax rate on the wealthy was 92 percent.
And it isn’t just the economy that suffers from wealth and income inequality. The implications for our politics are even more dire. It’s no wonder that the top GOP priority is always tax cuts for the rich, because those are the people who keep them in power. While most of the big money goes to Republicans, plenty also goes to those Democrats who are willing to play along, and all that money has warped policymaking in Washington to a degree we haven’t seen in the U.S. since the Gilded Age.
We don’t need more tax cuts for the rich and more wealth accumulated by those at the very top, who are now paying a lower percentage of their income in taxes than the average steelworker, teacher, or cop on the beat. It’s time to put some of that wealth to good use.