Robert Reich: Patriotism July 4, 2012

By Robert Reich, cross-posted from his website

In the last two weeks, the Supreme Court has allowed police in Arizona to demand proof of citizenship from people they stop on other grounds (while throwing out the rest of Arizona’s immigration law), and has allowed the federal government to require everyone buy health insurance — even younger and healthier people — or pay a penalty.

What do these decisions — and the national conversations they’ve engendered — have to do with patriotism? A great deal. Because underlying them are two different versions of American patriotism.

The Arizona law is aimed at securing the nation from outsiders. The purpose of the health care law is to join together to provide affordable health care for all.

The first version of patriotism is protecting America from people beyond our borders who might otherwise overrun us — whether immigrants coming here illegally or foreign powers threatening us with aggression.

The second version of patriotism is joining together for the common good. That might mean contributing to a bake sale to raise money for a local school or volunteering in a homeless shelter. It also means paying our fair share of taxes so our community or nation has enough resources to meet all our needs, and preserving and protecting our system of government.

This second meaning of patriotism recognizes our responsibilities to one another as citizens of the same society. It requires collaboration, teamwork, tolerance, and selflessness.

The Affordable Care Act isn’t perfect, but in requiring younger and healthier people to buy insurance that will help pay for the healthcare needs of older and sicker people, it summons the second version of patriotism.

Too often these days we don’t recognize and don’t practice this second version. We’re shouting at each other rather than coming together — conservative versus liberal, Democrat versus Republican, native-born versus foreign born, non-unionized versus unionized, religious versus secular.

Our politics has grown nastier and meaner. Negative advertising is filling the airwaves this election year. We’re learning more about why we shouldn’t vote for someone than why we should.

As I’ve said before, some elected officials have substituted partisanship for patriotism, placing party loyalty above loyalty to America. Just after the 2010 election, the Senate minority leader was asked about his party’s highest priority for the next two years. You might have expected him to say it was to get the economy going and reduce unemployment, or control the budge deficit, or achieve peace and stability in the Middle East. But he said the highest priority would be to make sure the President did not get a second term of office.

Our system of government is America’s most precious and fragile possession, the means we have of joining together as a nation for the common good. It requires not only our loyalty but ongoing vigilance to keep it working well. Yet some of our elected representatives act as if they don’t care what happens to it as long as they achieve their partisan aims.

The filibuster used to be rarely used. But over the last decade the threat of a filibuster has become standard operating procedure, virtually shutting down the Senate for periods of time.

Meanwhile, some members of the House have been willing to shut down the entire government in order to get their way. Last summer they were even willing to risk the full faith and credit of the United States in order to achieve their goals.

In 2010 the Supreme Court opened the floodgates to unlimited money from billionaires and corporations overwhelming our democracy, on the bizarre theory that corporations are people under the First Amendment. Congress won’t even pass legislation requiring their names be disclosed.

Some members of Congress have signed a pledge — not of allegiance to the United States but of allegiance to a man named Grover Norquist, who has never been elected by anyone. Norquist’s “no-tax” pledge is interpreted only by Norquist, who says closing a tax loophole is tantamount to raising taxes and therefore violates the pledge.

True patriots don’t hate the government of the United States. They’re proud of it. Generations of Americans have risked their lives to preserve and protect it. They may not like everything it does, and they justifiably worry then special interests gain too much power over it. But true patriots work to improve the U.S. government, not destroy it.

But these days some Americans loathe the government, and are doing everything they can to paralyze it, starve it, and make the public so cynical about it that it’s no longer capable of doing much of anything. Norquist says he wants to shrink it down to a size it can be “drowned in a bathtub.”

When arguing against paying their fair share of taxes, some wealthy Americans claim “it’s my money.” They forget it’s their nation, too. And unless they pay their fair share of taxes, American can’t meet the basic needs of our people. True patriotism means paying for America.

So when you hear people talk about patriotism, be warned. They may mean securing the nation’s borders, not securing our society. Within those borders, each of us is on our own. These people don’t want a government that actively works for all our citizens.

Yet true patriotism isn’t mainly about excluding outsiders seen as our common adversaries. It’s about coming together for the common good.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Beyond Outrage

Robert Reich On The True Meaning Of Patriotism

Excluding Outsiders Or Coming Together For The Common Good?

By Robert Reich, cross-posted from his website

Recently I publicly debated a regressive Republican who said Arizona and every other state should use whatever means necessary to keep out illegal immigrants. He also wants English to be spoken in every classroom in the nation, and the pledge of allegiance recited every morning. “We have to preserve and protect America,” he said. “That’s the meaning of patriotism.”

To my debating partner and other regressives, patriotism is about securing the nation from outsiders eager to overrun us. That’s why they also want to restore every dollar of the $500 billion in defense cuts scheduled to start in January. 

Yet many of these same regressives have no interest in preserving or protecting our system of government. To the contrary, they show every sign of wanting to be rid of it.

In fact, regressives in Congress have substituted partisanship for patriotism, placing party loyalty above loyalty to America.

The GOP’s highest-ranking member of Congress has said his “number one aim” is to unseat President Obama. For more than three years congressional Republicans have marched in lockstep, determined to do just that. They have brooked no compromise. 

They couldn’t care less if they mangle our government in pursuit of their partisan aims. Senate Republicans have used the filibuster more frequently in this Congress than in any congress in history.

House Republicans have been willing to shut down the government and even risk the full faith and credit of the United States in order to get their way.

Regressives on the Supreme Court have opened the floodgates to unlimited money from billionaires and corporations overwhelming our democracy, on the bizarre theory that money is speech under the First Amendment and corporations are people.

Regressive Republicans in Congress won’t even support legislation requiring the sources of this money-gusher be disclosed.

They’ve even signed a pledge – not of allegiance to the United States, but of allegiance to Grover Norquist, who has never been elected by anyone. Norquist’s “no-tax” pledge is interpreted only by Norquist, who says closing a tax loophole is tantamount to raising taxes and therefore violates the pledge.

True patriots don’t hate the government of the United States. They’re proud of it. Generations of Americans have risked their lives to preserve it. They may not like everything it does, and they justifiably worry when special interests gain too much power over it. But true patriots work to improve the U.S. government, not destroy it.

But regressive Republicans loathe the government – and are doing everything they can to paralyze it, starve it, and make the public so cynical about it that it’s no longer capable of doing much of anything. Tea Partiers are out to gut it entirely. Norquist says he wants to shrink it down to a size it can be “drowned in a bathtub.”

When arguing against paying their fair share of taxes, wealthy regressives claim “it’s my money.” But it’s their nation, too. And unless they pay their share America can’t meet the basic needs of our people. True patriotism means paying for America.

So when regressives talk about “preserving and protecting” the nation, be warned: They mean securing our borders, not securing our society. Within those borders, each of us is on our own. They don’t want a government that actively works for all our citizens.

Their patriotism is not about coming together for the common good. It is about excluding outsiders who they see as our common adversaries. 

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Beyond Outrage

Why The Economy Can't Get Out Of First Gear

By Robert Reich, cross-posted from his website

DonkeyHotey

Rarely in history has the cause of a major economic problem been so clear yet have so few been willing to see it.

The major reason this recovery has been so anemic is not Europe’s debt crisis. It’s not Japan’s tsumami. It’s not Wall Street’s continuing excesses. It’s not, as right-wing economists tell us, because taxes are too high on corporations and the rich, and safety nets are too generous to the needy. It’s not even, as some liberals contend, because the Obama administration hasn’t spent enough on a temporary Keynesian stimulus.

The answer is in front of our faces. It’s because American consumers, whose spending is 70 percent of economic activity, don’t have the dough to buy enough to boost the economy – and they can no longer borrow like they could before the crash of 2008.

If you have any doubt, just take a look at the Survey of Consumer Finances, released Monday by the Federal Reserve. Median family income was $49,600 in 2007. By 2010 it was $45,800 – a drop of 7.7%.

All of the gains from economic growth have been going to the richest 1 percent – who, because they’re so rich, spend no more than half what they take in.

Can I say this any more simply? The earnings of the great American middle class fueled the great American expansion for three decades after World War II. Their relative lack of earnings in more recent years set us up for the great American bust.


Starting around 1980, globalization and automation began exerting downward pressure on median wages. Employers began busting unions in order to make more profits. And increasingly deregulated financial markets began taking over the real economy.

The result was slower wage growth for most households. Women surged into paid work in order to prop up family incomes – which helped for a time. But the median wage kept flattening, and then, after 2001, began to decline.

Households tried to keep up by going deeply into debt, using the rising values of their homes as collateral. This also helped – for a time. But then the housing bubble popped.

The Fed’s latest report shows how loud that pop was. Between 2007 and 2010 (the latest data available) American families’ median net worth fell almost 40 percent – down to levels last seen in 1992. The typical family’s wealth is their home, not their stock portfolio – and housing values have dropped by a third since 2006.

Families have also become less confident about how much income they can expect in the future. In 2010, over 35% of American families said they did not “have a good idea of what their income would be for the next year.” That’s up from 31.4% in 2007.

But because their incomes and their net worth have both dropped, families are saving less. The proportion of families that said they had saved in the preceding year fell from 56.4% in 2007 to 52% in 2010, the lowest level since the Fed began collecting that information in 1992.

Bottom line: The American economy is still struggling because the vast American middle class can’t spend more to get it out of first gear.

What to do? There’s no simple answer in the short term except to hope we stay in first gear and don’t slide backwards.

Over the longer term the answer is to make sure the middle class gets far more of the gains from economic growth.

How? We might learn something from history. During the 1920s, income concentrated at the top. By 1928, the top 1 percent was raking in an astounding 23.94 percent of the total (close to the 23.5 percent the top 1 percent got in 2007) according to analyses of tax records by my colleague Emmanuel Saez and Thomas Piketty. At that point the bubble popped and we fell into the Great Depression.

But then came the Wagner Act, requiring employers to bargain in good faith with organized labor. Social Security and unemployment insurance. The Works Projects Administration and Civilian Conservation Corps. A national minimum wage. And to contain Wall Street: The Securities Act and Glass-Steagall Act.

In 1941 America went to war – a vast mobilization that employed every able-bodied adult American, and put money in their pockets. And after the war, the GI Bill, sending millions of returning veterans to college. A vast expansion of public higher education. And huge infrastructure investments, such as the National Defense Highway Act. Taxes on the rich remained at least 70 percent until 1981.

The result: By 1957, the top 1 percent of Americans raked in only 10.1 percent of total income. Most of the rest went to a growing middle class – whose members fueled the greatest economic boom in the history of the world.

Get it? We won’t get out of first gear until the middle class regains the bargaining power it had in the first three decades after World War II to claim a much larger share of the gains from productivity growth.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Beyond Outrage

The Big Lie Coup d'Etat

By Robert Reich, cross-posted from his website

JP Morgan Chase,  Goldman Sachs, BP, Chevron, WalMart, and billionaires Charles and David Koch are launching a multi-million dollar TV ad buy Tuesday blasting President Obama over the national debt.

Actually, I don’t know who’s behind this ad because there’s no way to know. And that’s a big problem.
The front group for the ad is Crossroads GPS, the sister organization to the super PAC American Crossroads run by Republican political operative Karl Rove.

Because Crossroads GPS is a tax-exempt nonprofit group, it can spend unlimited money on politics — and it doesn’t have to reveal where it gets the dough.

By law, all it has to do is spent most of the money on policy “issues,” which is a fig leaf for partisan politics.
Here’s what counts as an issue ad, as opposed to a partisan one. The narrator in the ad Crossroads GPS is launching solemnly intones: “In 2008, Barack Obama said, ‘We can’t mortgage our children’s future on a mountain of debt.’ Now he’s adding $4 billion in debt every day, borrowing from China for his spending. Every second, growing our debt faster than our economy,” he continues. “Tell Obama, stop the spending.”
This is a baldface lie, by the way.

Obama isn’t adding to the debt every day. The debt is growing because of obligations entered into long ago, many under George W. Bush – including two giant tax cuts that went mostly to the very wealthy that were supposed to be temporary and which are still going, courtesy of Republican blackmail over raising the debt limit.

In realty, government spending as a portion of GDP keeps dropping.

As I said, I don’t know who’s financing this big lie but there’s good reason to think it’s some combination of Wall Street, big corporations, and the billionaire Koch brothers.

According to the reliable inside-Washington source “Politico,” the Koch brothers’ network alone will be spending $400 million over the next six months trying to defeat Obama, which is more than Senator John McCain spent on his entire 2008 campaign.

Big corporations and Wall Street are also secretly funneling big bucks into front groups like the U.S. Chamber of Commerce that will use the money to air anti-Obama ads, while keeping secret the identities of these firms.

Looking at the all the anti-Obama super PACs and political fronts like Crossroads GPS, Politico estimates the anti-Obama forces (including the Romney campaign) will outspend Obama and pro-Obama groups by 2 to 1.

How can it be that big corporations and billionaires will be spending unlimited amounts on big lies like this one, without any accountability because no one will know  where the money is coming from?

Blame a majority of the Supreme Court in its grotesque 2010 Citizens United vs. Federal Election Commission decision — as well as the IRS for lax enforcement that lets political front groups like Crossroads GPS or the U.S. Chamber of Commerce pretend they’re not political.

But you might also blame something deeper, more sinister.

I’m not a conspiracy theorist (you can’t have served in Washington and seriously believe more than two people can hold on to a big story without it leaking), but I fear that at least since 2010 we’ve been witnessing a quiet, slow-motion coup d’etat whose purpose is to repeal every bit of progressive legislation since the New Deal and entrench the privileged positions of the wealthy and powerful — who haven’t been as wealthy or as powerful since the Gilded Age of the late 19th century.

Its technique is to inundate America with a few big lies, told over and over (the debt is Obama’s fault and it’s out of control; corporations and the very rich are the “job creators” that need tax cuts; government is the enemy, and its regulations are strangling the private sector; unions are bad; and so on), and tell them so often they’re taken as fact.

Then having convinced enough Americans that these lies are true, take over the White House, Congress, and remaining states that haven’t yet succumbed to the regressive right (witness Tuesday’s recall election in Wisconsin).

I desperately hope I’m wrong, but all there’s growing evidence I may be right. 


Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Beyond Outrage

Memorial Day Thoughts On National Defense

By Robert Reich, cross-posted from his website

We can best honor those who have given their lives for this nation in combat by making sure our military might is proportional to what America needs.

The United States spends more on our military than do China, Russia, Britain, France, Japan, and Germany put together.

With the withdrawal of troops from Afghanistan, the cost of fighting wars is projected to drop – but the “base” defense budget (the annual cost of paying troops and buying planes, ships, and tanks – not including the costs of actually fighting wars) is scheduled to rise. The base budget is already about 25 percent higher than it was a decade ago, adjusted for inflation.

One big reason: It’s almost impossible to terminate large defense contracts. Defense contractors have cultivated sponsors on Capitol Hill and located their plants and facilities in politically important congressional districts. Lockheed Martin, Raytheon, and others have made spending on national defense into America’s biggest jobs program.

So we keep spending billions on Cold War weapons systems like nuclear attack submarines, aircraft carriers, and manned combat fighters that pump up the bottom lines of defense contractors but have nothing to do with 21st-century combat.

For example, the Pentagon says it wants to buy fewer F-35 joint strike fighter planes than had been planned – the single-engine fighter has been plagued by cost overruns and technical glitches – but the contractors and their friends on Capitol Hill promise a fight.

The absence of a budget deal on Capitol Hill is supposed to trigger an automatic across-the-board ten-year cut in the defense budget of nearly $500 billion, starting January.

But Republicans have vowed to restore the cuts. The House Republican budget cuts everything else — yet brings defense spending back up. Mitt Romney’s proposed budget does the same.

Yet even if the scheduled cuts occur, the Pentagon is still projected to spend over $2.7 trillion over the next ten years.

At the very least, hundreds of billions could be saved without jeopardizing the nation’s security by ending weapons systems designed for an age of conventional warfare. We should shrink the F-35 fleet of stealth fighters. Cut the number of deployed strategic nuclear weapons, ballistic missile submarines and intercontinental ballistic missiles. And take a cleaver to the Navy and Air Force budgets. (Most of the action is with the Army, Marines and Special Forces.) 

At a time when Medicare, Medicaid, and non-defense discretionary spending (including most programs for the poor, as well as infrastructure and basic R&D) are in serious jeopardy, Obama and the Democrats should be calling for even more defense cuts.

A reasonable and rational defense budget would be a fitting memorial to those who have given their lives so we may remain free. 

Obama Should Be Attacking Casino Capitalism

By Robert Reich, cross-posted from his website
 

I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.

That way his so-called “attack” on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.

It’s an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples’ money to make big bets which, if they go wrong, can wreak havoc on the economy.
It’s the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.

It’s been terrible for the American economy and for our democracy.

It’s also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.

But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they’re still at it, as evidenced by Dimon’s current claim that the rule that eventually emerges would allow those bets.

As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite — a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance — any exception — will be stretched beyond recognition by the big banks.

So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.

There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.

At the same time, there’s no point to the “carried interest” loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they’ve risked no money of their own.

If private equity were good for America it wouldn’t need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.

Get it? Bain Capital and JPMorgan are parts of the same problem. The President should be leading the charge against both.

Robert Reich Explains How We Need A New Era Of Reform Based On Public -- Not Private -- Morality

Romney Has Public Morality And Private Morality Upside Down

by Robert Reich, cross-posted from his website



Mitt Romney’s reaction to J.P. Morgan Chase’s mounting losses from reckless trades is “the market will take care of it.” His spokesman says “no taxpayer money was at risk” so we don’t need more financial regulation. Romney has even promised to repeal Dodd-Frank if he’s elected president.

Yet at the same time, Romney has come out strongly against same-sex marriage. He’s also against abortion. He has no problem with government intruding on the most intimate of decisions a person makes.

He’s got private and public morality upside down. He doesn’t want to regulate where regulation is necessary — at the highest reaches of the economy, where public immorality has cost us dearly, and will cost even more unless boardroom behavior is constrained. Yet he wants to regulate where regulation is least appropriate — at the level of the individual, in bedrooms and other intimate spaces, where private morality should govern.

This is a dangerous confusion. It should be a matter of personal choice whom to marry and when to have children. But it is undoubtedly a matter of public choice whether big banks should be allowed to take the kind of risky bets that plunged the economy into the worst downturn since the Great Depression, and whether people with great wealth and should be able to buy our democracy with huge campaign contributions.

Please see the attached video and pass it on.

 Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Beyond Outrage.

Of Boardrooms And Bedrooms

By Robert Reich, cross-posted from his website

Mario Piperni

The 2012 election should be about what’s going on in America’s boardrooms, but Republicans would rather it be about America’s bedrooms.

Mitt Romney says he’s against same-sex marriage; President Obama just announced his support. North Carolina voters have approved a Republican-proposed amendment to the state constitution banning same-sex marriage. Minnesota voters will be considering a similar amendment in November. Republicans in Maryland and Washington State are seeking to overturn legislative approval of same-sex marriage there.

Meanwhile, Republicans have introduced over four hundred bills in state legislatures aimed at limiting womens’ reproductive rights – banning abortions, requiring women seeking abortions to have invasive ultra-sound tests beforehand, and limiting the use of contraceptives.

The Republican bedroom crowd don’t want to talk about the nation’s boardrooms because that’s where most of their campaign money comes from. And their candidate for president has made a fortune playing board rooms like checkers.

Yet America’s real problems have nothing to do with what we do in our bedrooms and everything to do with what top executives do in their boardrooms and executive suites.

We’re not in trouble because gays want to marry or women want to have some control over when they have babies. We’re in trouble because CEOs are collecting exorbitant pay while slicing the pay of average workers, because the titans of Wall Street demand short-term results over long-term jobs, and because of a boardroom culture that tolerates financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”

Our crisis has nothing to do with private morality. It’s a crisis of public morality – of abuses of public trust that undermine the integrity of our economy and democracy and have led millions of Americans to conclude the game is rigged.y and democracy and have led millions of Americans to conclude the game is rigged.

What’s truly immoral is not what adults choose to do with other consenting adults. It’s what those with great power have chosen to do to the rest of us.

It is immoral that top executives are richly rewarded no matter how badly they screw up while most Americans are screwed no matter how hard they work.

Regressive Republicans have no problem intruding on the most personal and most intimate decisions any of us makes while railing against government intrusions on big business.

They don’t hesitate to hurl the epithets “shameful,” “disgraceful,” and “contemptible” at private moral decisions they disagree with, while staying stone silent in the face of the most contemptible violations of public trust at the highest reaches of the economy.

We must protect and advance private rights of individuals over intimate bedroom decisions. We must also stop the abuses of economic power and privilege that are characterizing so many decisions in the nation’s boardrooms and executive suites.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Beyond Outrage.

What America Can Learn From The Revolt In Europe

By Robert Reich, cross-posted from his website

Who’s an economy for? Voters in France and Greece have made it clear it’s not for the bond traders.

Referring to his own electoral woes, Prime Minister David Cameron wrote Monday in an article in the conservative Daily Telegraph: “When people think about the economy they don’t see it through the dry numbers of the deficit figures, trade balances or inflation forecasts — but instead the things that make the difference between a life that’s worth living and a daily grind that drags them down.”

Cameron, whose own economic policies have worsened the daily grind dragging down most Brits, may be sobered by what happened over the weekend in France and Greece – as well as his own poll numbers. Britain’s conservatives have been taking a beating.

In truth, the choice isn’t simply between budget-cutting austerity, on the one hand, and growth and jobs on the other. 

It’s really a question of timing. And it’s the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.

That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy – and thereby increase the size of the public debt relative to the size of the overall economy.

You end up with the worst of both worlds – a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed.

The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget axe.

If Hollande’s new government pushes Angela Merkel in this direction, he’ll end up saving the euro and, ironically, the jobs of many conservative leaders throughout Europe – including Merkel and Cameron.

But he also has an important audience in the United States, where Republicans are trying to sell a toxic blend of trickle-down supply-side economics (tax cuts on the rich and on corporations) and austerity for everyone else (government spending cuts). That’s exactly the opposite of what’s needed now.  

Yes, America has a long-term budget deficit that’s scary. So does Europe. But the first priority in America and in Europe must be growth and jobs. That means rejecting austerity economics for now, while at the same time demanding that corporations and the rich pay their fair share of the cost of keeping everyone else afloat.

President Obama and the Democrats should set a clear trigger — say, 6 percent unemployment and two quarters of growth greater than 3 percent — before whacking the budget deficit.

And they should set that trigger now, during the election, so the public can give them a mandate on Election Day to delay the “sequestration” cuts (now scheduled to begin next year) until that trigger is met.

The GOP's Death Wish

Why Republicans Can't Stop Pissing Off  Hispanics, Women, and Young People

By Robert Reich, cross-posted from his website

What are the three demographic groups whose electoral impact is growing fastest? Hispanics, women, and young people. Who are Republicans pissing off the most? Latinos, women, and young people.

It’s almost as if the GOP can’t help itself.

Start with Hispanic voters, whose electoral heft keeps growing as they comprise an ever-larger portion of the electorate. Hispanics now favor President Obama over Romney by more than two to one, according to a recent Pew poll.

The movement of Hispanics into the Democratic camp has been going on for decades. What are Republicans doing to woo them back? Replicating California Republican Governor Pete Wilson’s disastrous support almost twenty years ago for Proposition 187 – which would have screened out undocumented immigrants from public schools, health care, and other social services, and required law-enforcement officials to report any “suspected” illegals. (Wilson, you may remember, lost that year’s election, and California’s Republican Party has never recovered.)

The Arizona law now before the Supreme Court – sponsored by Republicans in the state and copied by Republican legislators and governors in several others – would authorize police to stop anyone looking Hispanic and demand proof of citizenship. It’s nativism disguised as law enforcement.
Romney is trying to distance himself from that law, but it’s not working. That may be because he dubbed it a “model law” during February’s Republican primary debate in Arizona, and because its author (former state senator Russell Pearce, who was ousted in a special election last November largely by angry Hispanic voters) says he’s working closely with Romney advisers.

Hispanics are also reacting to Romney’s attack just a few months ago on GOP rival Texas Governor Rick Perry for supporting in-state tuition at the University of Texas for children of undocumented immigrants. And to Romney’s advocacy of what he calls “self-deportation” – making life so difficult for undocumented immigrants and their families that they choose to leave.

As if all this weren’t enough, the GOP has been pushing voter ID laws all over America, whose obvious aim is to intimidate Hispanic voters so they won’t come to the polls. But they may have the opposite effect – emboldening the vast majority of ethnic Hispanics, who are American citizens, to vote in even greater numbers and lend even more support to Obama and other Democrats.

Or consider women – whose political and economic impact in America continues to grow (women are fast becoming better educated than men and the major breadwinners in American homes). The political gender gap is huge. According to recent polls, women prefer Obama to Romney by over 20 percent.

So what is the GOP doing to woo women back? Attacking them. Last February, House Republicans voted to cut off funding to Planned Parenthood. Last May, they unanimously passed the “No Taxpayer Funding for Abortion Act,” banning the District of Columbia from funding abortions for low-income women. (The original version removed all exceptions – rape, incest, and endangerment to a mother’s life – except “forcible” rape.)

Earlier this year Republican legislators in Virginia, Pennsylvania, Idaho, and Alabama pushed bills requiring women seeking abortions to undergo invasive vaginal ultrasound tests (Pennsylvania Republicans even wanted proof such had viewed the images).

Republican legislators in Georgia and Arizona passed bills banning most abortions after twenty weeks of pregnancy. The Georgia bill would also require that any abortion after 20 weeks be done in a way to bring the fetus out alive. Republican legislators in Texas have voted to eliminate funding for any women’s healthcare clinic with an affiliation to an abortion provider – even if the affiliation is merely a shared name, employee, or board member.

All told, over 400 Republican bills are pending in state legislatures, attacking womens’ reproductive rights.

But even this doesn’t seem enough for the GOP. Republicans in Wisconsin just repealed a law designed to prevent employers from discriminating against women.

Or, finally, consider students – a significant and growing electoral force, who voted overwhelmingly for Obama in 2008. What are Republicans doing to woo them back? Attack them, of course.
Republican Budget Chair Paul Ryan’s budget plan – approved by almost every House Republican and enthusiastically endorsed by Mitt Romney – allows rates on student loans to double on July 1 – from 3.4 percent to 6.8 percent. That will add an average of $1,000 a year to student debt loads, which already exceed credit-card debt.

House Republicans say America can’t afford the $6 billion a year it would require to keep student loan rates down to where they are now. But that same Republican plan gives wealthy Americans trillions of dollars in tax cuts over the next decade. (Under mounting political pressure, House Republicans have come up with just enough money to keep the loan program going for another year – safely past Election Day – by raiding a fund established for preventive care in the new health-care act.)

Here again, Romney is trying to tiptoe away from the GOP position. He now says he supports keeping student loans where they were. Yet only a few months ago he argued that subsidized student loans were bad because they encouraged colleges to raise their tuition.

How can a political party be so dumb as to piss off Hispanics, women, and young people? Because the core of its base is middle-aged white men – and it doesn’t seem to know how to satisfy its base without at the same time turning off everyone who’s not white, male, and middle-aged.

 Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Beyond Outrage.

A Fair Economy Is Not Incompatible With Growth But Essential To It

By Robert Reich, cross-posted from his website

One of the most pernicious falsehoods you’ll hear during the next seven months of political campaigning is there’s a necessary tradeoff between fairness and economic growth. By this view, if we raise taxes on the wealthy the economy can’t grow as fast.

Wrong. Taxes were far higher on top incomes in the three decades after World War II than they’ve been since. And the distribution of income was far more equal. Yet the American economy grew faster in those years than it’s grown since tax rates on the top were slashed in 1981.

This wasn’t a post-war aberration. Bill Clinton raised taxes on the wealthy in the 1990s, and the economy produced faster job growth and higher wages than it did after George W. Bush slashed taxes on the rich in his first term.

If you need more evidence, consider modern Germany, where taxes on the wealthy are much higher than they are here and the distribution of income is far more equal. But Germany’s average annual growth has been faster than that in the United States.

You see, higher taxes on the wealthy can finance more investments in infrastructure, education, and health care – which are vital to a productive workforce and to the economic prospects of the middle class. 

Higher taxes on the wealthy also allow for lower taxes on the middle – potentially restoring enough middle-class purchasing power to keep the economy growing. As we’ve seen in recent years, when disposable income is concentrated at the top, the middle class doesn’t have enough money to boost the economy.

Finally, concentrated wealth can lead to speculative bubbles as the rich in the same limited class of assets – whether gold, dotcoms, or real estate. And when these bubbles pop the entire economy suffers.

What we should have learned over the last half century is that growth doesn’t trickle down from the top. It percolates upward from working people who are adequately educated, healthy, sufficiently rewarded, and who feel they have a fair chance to make it in America.

Fairness isn’t incompatible with growth. It’s necessary for it. 

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.

The Buffett Rule Sets The Bar Too Low

By Robert Reich, cross-posted from his website

Next Monday most Americans will be filing their income taxes for tax year 2011. This year, though, tax day has special significance. If there’s one clear policy contrast between Democrats and Republicans in the 2012 election, it’s whether America’s richest citizens should be paying more.

Senate Democrats have scheduled a vote Monday on a minimum 30 percent overall federal tax rate for everyone earning more than $1 million a year. It’s nicknamed the “Buffett Rule” in honor of billionaire Warren Buffett who has publicly complained that he pays a lower tax rate than his secretary.

No one in Washington believes the Buffett Rule has any hope of passage this year. It’s largely symbolic. The vote will mark a sharp contrast with Republican Paul Ryan’s plan (enthusiastically endorsed by Mitt Romney) to cut the tax rate on the super rich from 35 percent to 25 percent – rewarding millionaires with a tax cut of at least $150,000 a year. The vote will also serve to highlight that Romney himself paid less than 14 percent on a 2010 income of $21.7 million because so much of his income was in capital gains, taxed at 15 percent. 

Hopefully in the weeks and months ahead the White House and the Democrats will emphasize three key realities:

1. The richest 1 percent of Americans are now taking in over 20 percent of total national income, and so far have raked in almost all the gains from this recovery. Thirty years ago, the richest 1 percent got 9 percent of total income. Income and wealth are now more concentrated at the top than they’ve been since the 1920s. 

2. The richest 1 percent are paying a lower tax rate than they’ve paid since 1980. For three decades after World War II, their tax rate never dropped below 70 percent. Even considering all deductions and tax credits, they paid close to 55 percent. Under Eisenhower, the top rate was 91 percent and the effective rate was 58 percent.

3. Right now the nation faces two yawning deficits – an investment deficit and a federal budget deficit. The investment deficit includes deferred maintenance on America’s infrastructure – roads, bridges, public transit, water and sewer systems that are all crumbling – and an educational system that’s being starved for resources (the federal government pays for 8 percent of K-12 education and about 5 percent of public higher education, but could do much more). The federal budget deficit is projected to mushroom to $6.4 trillion over the next ten years, mostly because of aging boomers and soaring healthcare costs.

Any serious person looking at these three realities would conclude that the rich should be paying far more. It’s not just a matter of fairness; it’s also a matter of patriotism. 

In fact, given these realities, the Buffett Rule sets the bar too low. For most Americans, wages and benefits are declining (adjusted for inflation), net worth has been plummeting (their only asset is their homes), and the public services they rely on have been disappearing. For the top, it’s just the opposite: Their incomes are rising, their stock-market portfolios have been growing, and a growing portion of their earnings has been subject to a capital-gains tax of just 15 percent. 

The Buffett Rule would generate only about $47 billion in extra revenues over the next decade, according to congressional estimates. Why not restore top rates to what they were before 1980, and match the capital-gains rate to the income-tax rate?

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.

Health Care Jujitsu

By Robert Reich, cross-posted from his website

Not surprisingly, today’s debut Supreme Court argument over the so-called “individual mandate” requiring everyone to buy health insurance revolved around epistemological niceties such as the meaning of a “tax,” and the question of whether the issue is ripe for review.

Behind this judicial foreplay is the brute political fact that if the Court decides the individual mandate is an unconstitutional extension of federal authority, the entire law starts unraveling.

But with a bit of political jujitsu, the President could turn any such defeat into a victory for a single-payer healthcare system – Medicare for all.

Here’s how.

The dilemma at the heart of the new law is that it continues to depend on private health insurers, who have to make a profit or at least pay all their costs including marketing and advertising.

Yet the only way private insurers can afford to cover everyone with pre-existing health problems, as the new law requires, is to have every American buy health insurance – including young and healthier people who are unlikely to rack up large healthcare costs.

This dilemma is the product of political compromise. You’ll remember the Administration couldn’t get the votes for a single-payer system such as Medicare for all. It hardly tried. Not a single Republican would even agree to a bill giving Americans the option of buying into it.

But don’t expect the Supreme Court to address this dilemma. It lies buried under an avalanche of constitutional argument.

Those who are defending the law in Court say the federal government has authority to compel Americans to buy health insurance under the Commerce Clause of the Constitution, which gives Washington the power to regulate interstate commerce. They argue our sprawling health insurance system surely extends beyond an individual state.

Those who are opposing the law say a requirement that individuals contract with private insurance companies isn’t regulation of interstate commerce. It’s coercion of individuals.

Unhappily for Obama and the Democrats, most Americans don’t seem to like the individual mandate very much anyway. Many on the political right believe it a threat to individual liberty. Many on the left object to being required to buy something from a private company.

The President and the Democrats could have avoided this dilemma in the first place if they’d insisted on Medicare for all, or at least a public option.

After all, Social Security and Medicare require every working American to “buy” them. The purchase happens automatically in the form of a deduction from everyone’s paychecks. But because Social Security and Medicare are government programs financed by payroll taxes they don’t feel like mandatory purchases.

Americans don’t mind mandates in the form of payroll taxes for Social Security or Medicare. In fact, both programs are so popular even conservative Republicans were heard to shout “don’t take away my Medicare!” at rallies opposed to the new health care law.

There’s no question payroll taxes are constitutional, because there’s no doubt that the federal government can tax people in order to finance particular public benefits. But requiring citizens to buy something from a private company is different because private companies aren’t directly accountable to the public. They’re accountable to their owners and their purpose is to maximize profits. What if they monopolize the market and charge humongous premiums? (Some already seem to be doing this.)

Even if private health insurers are organized as not-for-profits, there’s still a problem of public accountability. What’s to prevent top executives from being paid small fortunes? (In more than a few cases this is already happening.)

Moreover, compared to private insurance, Medicare is a great deal. Its administrative costs are only around 3 percent, while the administrative costs of private insurers eat up 30 to 40 percent of premiums. Medicare’s costs are even below the 5 percent to 10 percent administrative costs borne by large companies that self-insure, and under the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

So why not Medicare for all?

Because Republicans have mastered the art of political jujitsu. Their strategy has been to demonize government and seek to privatize everything that might otherwise be a public program financed by tax dollars (see Paul Ryan’s plan for turning Medicare into vouchers). Then they go to court and argue that any mandatory purchase is unconstitutional because it exceeds the government’s authority.

Obama and the Democrats should do the reverse. If the Supreme Court strikes down the individual mandate in the new health law, private insurers will swarm Capitol Hill demanding that the law be amended to remove the requirement that they cover people with pre-existing conditions.

When this happens, Obama and the Democrats should say they’re willing to remove that requirement – but only if Medicare is available to all, financed by payroll taxes.

If they did this the public will be behind them — as will the Supreme Court.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.

Quote Of The Day

"America has always been the kind of place where people can reinvent themselves, escaping from their pasts by turning the knobs on their own virtual Etch-A-Sketch identities. But the ubiquity of video technology has made this much, much harder to do. Videos have a way of reminding everyone who you are — and were."

Robert Reich

What Republicans Argue When They Have Nothing Left To Say

By Robert Reich, cross-posted from his website

DonkeyHotey

Republicans are desperate. They can’t attack Obama on jobs because the jobs picture is improving.

Their attack on the Administration’s rule requiring insurers to cover contraception has backfired, raising hackles even among many Republican women.

Their attack on Obama for raising gas prices has elicited scorn from economists of all persuasions who know oil prices are set in global markets and that demand in the United States has actually fallen.

Their presidential ambitions are being trampled in a furious fraternal war among Republican candidates.

Their Tea Party wing wants to reopen the budget deal forged with Democrats after Republicans got bloodied by threatening to block an increase in the debt limit.

So what are Republicans to do now? What they always do when they have nothing else to say.
Call for a tax cut, of course.

It doesn’t matter that their new “tax reform” plan (leaked to the Wall Street Journal late Monday, to be released Tuesday morning) has as much chance of being enacted as Herman Cain has of being elected president.

It doesn’t matter than the plan doesn’t detail how they plan to pay for the tax cuts. Or whether an even bigger whack would have to be taken out of Medicare than Paul Ryan’s original voucher plan – which would drowned many elderly under rising medical costs.

It doesn’t even matter that the plan would probably raise taxes on many lower-income Americans,
All that matters is the headlines.

“House Republican Budget to Propose Lower Income Tax Rates,” says Bloomberg Businessweek. “Republican Budget Plan Seeks to Play Up Tax Reform,” says Reuters. “GOP’s Budget Targets Taxes,” blares the Wall Street Journal.

Presto. Republicans have gotten what they wanted on the basis of saying absolutely nothing.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.

The Difference Between Private And Public Morality

By Robert Reich, cross-posted from his website

DonkeyHotey

Republicans have morality upside down. Santorum, Gingrich, and even Romney are barnstorming across the land condemning gay marriage, abortion, out-of-wedlock births, access to contraception, and the wall separating church and state.

But America’s problem isn’t a breakdown in private morality. It’s a breakdown in public morality. What Americans do in their bedrooms is their own business. What corporate executives and Wall Street financiers do in boardrooms and executive suites affects all of us.

There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”

Political scientist James Q. Wilson, who died last week, noted that a broken window left unattended signals that no one cares if windows are broken. It becomes an ongoing invitation to throw more stones at more windows, ultimately undermining moral standards of the entire community.

The windows Wall Street broke in the years leading up to the crash of 2008 remain broken. Despite financial fraud on a scale not seen in this country for more than eighty years, not a single executive of a major Wall Street bank has been charged with a crime.

Since 2009, the Securities and Exchange Commission has filed 25 cases against mortgage originators and securities firms. A few are still being litigated but most have been settled. They’ve generated almost $2 billion in penalties and other forms of monetary relief, according to the Commission. But almost none of this money has come out of the pockets of CEOs or other company officials; it has come out of the companies — or, more accurately, their shareholders. Federal prosecutors are now signaling they won’t even bring charges in the brazen case of MF Global, which lost billions of dollars that were supposed to be kept safe.

Nor have any of the lawyers, accountants, auditors, or top executives of credit-rating agencies who aided and abetted Wall Street financiers been charged with doing anything wrong.

And the new Dodd-Frank law that was supposed to prevent this from happening again is now so riddled with loopholes, courtesy of Wall Street lobbyists, that it’s almost a sham. The Street prevented the Glass-Steagall Act from being resurrected, and successfully fought against limits on the size of the largest banks.

Windows started breaking years ago. Enron’s court-appointed trustee reported that bankers from Citigroup and JP Morgan Chase didn’t merely look the other way; they dreamed up and sold Enron financial schemes specifically designed to allow Enron to commit fraud. Arthur Andersen, Enron’s auditor, was convicted of obstructing justice by shredding Enron documents, yet most of the Andersen partners who aided and abetted Enron were never punished.

Americans are entitled to their own religious views about gay marriage, contraception, out-of-wedlock births, abortion, and God. We can be truly free only if we’re confident we can go about our private lives without being monitored or intruded upon by government, and can practice whatever faith (or lack of faith) we wish regardless of the religious beliefs of others. A society where one set of religious views is imposed on a large number of citizens who disagree with them is not a democracy.

It’s a theocracy.

But abuses of public trust such as we’ve witnessed for years on the Street and in the executive suites of our largest corporations are not matters of private morality. They’re violations of public morality. They undermine the integrity of our economy and democracy. They’ve led millions of Americans to conclude the game is rigged.

Regressive Republicans have no problem hurling the epithets “shameful,” “disgraceful,” and “contemptible” at private moral decisions they disagree with. Rush Limbaugh calls a young woman a “slut” just for standing up for her beliefs about private morality.

Republicans have staked out the moral low ground. It’s time for Democrats and progressives to stake out the moral high ground, condemning the abuses of economic power and privilege that characterize this new Gilded Age – business deals that are technically legal but wrong because they exploit the trust that investors or employees have place in those businesses, pay packages that are ludicrously high compared with the pay of average workers, political donations so large as to breed cynicism about the ability of their recipients to represent the public as a whole.

An economy is built on a foundation of shared morality. Adam Smith never called himself an economist. The separate field of economics didn’t exist in the eighteenth century. He called himself a moral philosopher. And the book he was proudest of wasn’t “The Wealth of Nations,” but his “Theory of Moral Sentiments” – about the ties that bind people together into societies.

Twice before progressive have saved capitalism from its own excesses by appealing to public morality and common sense. First in the early 1900s, when the captains for American industry had monopolized the economy into giant trusts, American politics had sunk into a swamp of patronage and corruption, and many factory jobs were unsafe – entailing long hours of work at meager pay and often exploiting children. In response, we enacted antitrust, civil service reforms, and labor protections.

And then again in 1930s after the stock market collapsed and a large portion of American workforce was unemployed. Then we regulated banks and insured deposits, cleaned up stock market, and provided social insurance to the destitute.

It’s time once again to save capitalism from its own excesses — and to base a new era of reform on public morality and common sense.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.

The Widening Wealth Divide

And Why We Need A Surtax On The Super Wealthy

By Robert Reich, cross-posted from his website

$2500 Louboutin pumps

The rest of us ought to be having a serious discussion about a wealth tax. Because if you really want to know what’s happening to the American economy you need to look at household wealth — not just incomes.

The Fed just reported that household wealth increased from October through December. That’s the first gain in three quarters.

Good news? Take closer look. The entire gain came from increases in stock prices. Those increases in stock values more than made up for continued losses in home values.

But the vast majority of Americans don’t have their wealth in the stock market. Over 90 percent of the nation’s financial assets – including stocks and pension-fund holdings – are owned by the richest 10 percent of Americans. The top 1 percent owns 38 percent.

Most Americans have their wealth in their homes – whose prices continue to drop. Housing prices are down by a third from their 2006 peak.

So as the value of financial assets held by American households increased by $1.46 trillion in the fourth quarter, the wealthiest 10 percent of Americans became $1.3 trillion richer, and the wealthiest 1 percent became $554.8 billion richer.

But at the same time, as the value of household real estate fell by $367.4 billion in the fourth quarter, homeowners – mostly middle class – lost over $141 billion (owners’ equity is 38.4 percent of total household real estate).

Presto. America’s wealth gap – already wider than the nation’s income gap – has become even wider. The 400 richest Americans have more wealth than the bottom 150 million Americans put together.

Given this unprecedented concentration of wealth – and considering what the nation needs to do to rebuild our schools and infrastructure while at the same time saving Medicare and reducing the long-term budget deficit – shouldn’t we be aiming higher than a “Buffet tax” on the incomes of millionaires?

There should also be a surtax on the super rich.



Yale Professor Bruce Ackerman and Anne Alstott have proposed a 2 percent surtax on the wealth of the richest one-half of 1 percent of Americans owning more than $7.2 million of assets. They figure it would generate $70 billion a year, or $750 billion over the decade. That’s half the savings Congress’s now defunct Supercommittee was aiming for.

Instead of standing empty-handed while Santorum and Romney dominate the airwaves with their regressive Social Darwinism, Democrats need to be reminding Americans of what’s happening in the real economy – and what needs to happen.

The wealth gap is widening into a chasm. A surtax on the super rich is fair — and it’s necessary.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.

The Ongoing Housing Crisis And The End Of An Era

By Robert Reich, cross-posted from his website

Economic cheerleaders on Wall Street and in the White House are taking heart. The US has had three straight months of faster job growth. The number of Americans each week filing new claims for unemployment benefits is down by more than 50,000 since early January. Corporate profits are healthy. The S&P 500 on Friday closed at a post-financial crisis high.

Has the American recovery finally entered the sweet virtuous cycle in which more spending generates more jobs, more jobs make consumers more confident, and the confidence creates more spending? > On the surface it would appear so.

American consumers in recent months have let loose their pent-up demand for cars and appliances. Businesses have been replacing low inventories and worn equipment. The richest 10 per cent, owners of approximately 90 per cent of the nation’s financial capital, have felt freer to splurge. Consumer confidence is at a one-year high, according to data released on Friday.

The U.S. government has not succumbed entirely to the lunacy of austerity. Republicans in Congress have just agreed to extend both a payroll tax cut and extra unemployment benefits, and the US Federal Reserve is resolutely keeping interest rates near zero.

Yet the US economy has been down so long that it needs substantial growth to get back on track – far faster than the 2.2 - 2.7 per cent projected by the Federal Reserve for this year (a projection which itself is likely to be far too optimistic).

A strong recovery can’t rely on pent-up demand for replacements or on the spending of the richest 10 per cent. Consumer spending is 70 per cent of the US economy, so a buoyant recovery must involve the vast middle class.

But America’s middle class is still hobbled by net job losses and shrinking wages and benefits. Although the US population is much larger than it was 10 years ago, the total number of jobs today is no more than it was then. A significant portion of the working population has been sidelined – many for good. And the median wage continues to drop, adjusted for inflation. On top of all that, rising gas prices are squeezing home budgets even more.

Yet the biggest continuing problem for most Americans is their homes.

Purchases of new homes are down 77 per cent from their 2005 peak. They dropped another 0.9 per cent in January. Home sales overall are still dropping, and prices are still falling – despite already being down by a third from their 2006 peak. January’s average sale price was $154,700, down from $162,210 in December. Houses are the major assets of the American middle class. Most Americans are therefore far poorer than they were six years ago. Almost one out of three homeowners with a mortgage is now “underwater”, owing more to the banks than their homes are worth on the market.

Optimists point to declining home inventories in relation to sales, but they’re looking at an illusion. Those supposed inventories don’t include about 5 million housing units with delinquent mortgages or those in foreclosure, which will soon be added to the pile. Nor do they include approximately 3 million housing units that stand vacant – foreclosed upon but not yet listed for sale, or vacant homes that owners have pulled off the market because they can’t get a decent price for them. Vacancies are up 1m from 2006.

What we’re witnessing is a fundamental change in the consciousness of Americans about their homes. Starting at the end of the second world war, houses were seen as good and safe investments because home values continuously rose. In the late 1960s and 1970s, early baby boomers got the largest mortgages they could afford, and watched their nest eggs grow into ostrich eggs.

Trading up became the norm. Homes morphed into automatic teller machines, as baby boomers used them as collateral for additional loans. By the rip-roaring 2000s, it was not unusual for the middle class to buy second and third homes on speculation. Most assumed their homes would become their retirement savings. When the time came, they’d trade them in for a smaller unit, and live off the capital gains.

The plunge in home values has changed all this. Young couples are no longer buying homes; they’re renting because they’re not confident they can get or hold jobs that will reliably allow them to pay a mortgage. Middle-aged couples are underwater or unable to sell their homes at prices that allow them to recover their initial investments. They can’t relocate to find employment. They can’t retire.

The negative wealth effect of home values, combined with declining wages, makes it highly unlikely the US will enjoy a robust recovery any time soon.

Under these circumstances it’s not enough to rely on low interest rates and make it easier for homeowners who have kept up with their mortgage payments to refinance their underwater homes. The Administration should also push to alter the federal bankruptcy law, so homeowners can use the protection of bankruptcy to reorganize their mortgage loans. (Few will actually do so, but the change would give homeowners more bargaining power to get lenders to voluntarily alter the terms.) A second possibility if for the Federal Housing Administration to offer to take on a portion of a household’s mortgage debt in exchange for an equitable interest in the home, of the same proportion, when it is sold. Such debt-for-equity swaps could help homeowners now struggling to keep up with their mortgage payments, while not adding to the federal budget in future years when housing prices are expected to rise.

But whatever is done will not affect the fundamental change that’s come over Americans with regard to their homes. It’s not clear what will take the place of houses as the major investments of the American middle class.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.

Why Is Obama Proposing A Tax Cut For Corporations?

One step forward, two steps back.  Just when you think Obama just might ride the wave of the 99%, provide a contrast with his Republican opponents, and push for a more populist agenda he undercuts it by once again spouting conservative talking points, this time about how the current tax code is unfair to corporations.  Instead of arguing that corporations need to pay more -- or at least their fair share -- he proposes to cut their taxes while closing loopholes, a plan intended to be "revenue neutral."  There is nothing neutral about it.  --- Lovechilde 

By Robert Reich, cross-posted from his website

The Obama administration is proposing to lower corporate taxes from the current 35 percent to 28 percent for most companies and to 25 percent for manufacturers.

The move is supposed to be “revenue neutral” – meaning the Administration is also proposing to close assorted corporate tax loopholes to offset the lost revenues. One such loophole allows corporations to park their earnings overseas where taxes are lower.

Why isn’t the White House just proposing to close the loopholes without reducing overall corporate tax rates? That would generate more tax revenue that could be used for, say, public schools.

It’s not as if corporations are hurting. Quite the contrary. American companies are booking higher profits than ever. They’re sitting on $2 trillion of cash they don’t know what to do with.

And it’s not as if corporate taxes are high. In fact, corporate tax receipts as a share of profits is now at its lowest level in at least 40 years. According to the Congressional Budget Office, corporate federal taxes paid last year dropped to 12.1 percent of profits earned from activities within the United States. That’s a gigantic drop from the 25.6 percent, on average, that corporations paid from 1987 to 2008.

And it’s not that corporations are paying an inordinate share of federal tax revenues. Here again, the reality is just the opposite. Corporate taxes have plummeted as a share of total federal revenues. In 1953, under President Dwight Eisenhower, a Republican, corporate taxes accounted for 32 percent of total federal tax revenues. Now they’re only 10 percent.

But now the federal budget deficit is ballooning, and in less than a year major cuts are scheduled to slice everything from prenatal care to Medicare. So this would seem to be the ideal time to raise corporate taxes – or at the very least close corporate tax loopholes without lowering corporate rates.
The average American is not exactly enamored with American corporations. Polls show most of the public doesn’t trust them. (A recent national poll by the University of Massachusetts at Lowell found 71 percent with an unfavorable impression of big business – about the same as those expressing an unfavorable view of Washington.)
 
The Administration’s initiative doesn’t even make sense as a bargaining maneuver.


Republicans will just accept the Administration’s lower corporate tax rate without closing any tax loopholes. House Republicans have already made it clear that, to them, closing a tax loophole is tantamount to raising taxes. And corporate lobbyists in Washington know better than anyone how to hold tight to loopholes they’ve already got.

Big business will fight to keep their foreign tax shelters. After all, it’s almost impossible to distinguish between their foreign and domestic earnings, which is why the U.S. Chamber of Commerce and other business lobbies have spent the past three years trying to make it even easier for companies to defer U.S. taxes on income they supposedly earn outside the country.

Representative David Camp, a Michigan Republican who heads the House Ways and Means Committee, has already proposed a 25 percent corporate top rate and changes that would let companies avoid paying U.S. taxes on even more of the income they say they earn outside America.
Nothing is going to be enacted this year, anyway, so it would have made more sense for the Administration to support a hike in corporate taxes – and use it to highlight the difference between the President and his likely Republican challenger.

Mitt Romney wants to reduce the corporate tax rate to 25 percent before eliminating any tax loopholes. Rick Santorum wants to cut the rate to 17.5 percent and eliminate corporate taxes for manufacturers. Newt Gingrich wants to cut the rate to 12.5 percent and let companies write off all capital investments immediately.

It’s discouraging. The President gives a rousing speech, as he did on December 6 in Kansas. Then he misses an opportunity to put his campaign where his mouth is.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.