The Trickle-Up Economy: How We Take from the Poor and Middle Class and Give to the Rich 9781685851040

Citation preview

THE

TRICKLE-UP ECONOMY

THE

TRICKLE-UP ECONOMY How We Take from the Poor and Middle Class and Give to the Rich Mark Mattern

b o u l d e r l o n d o n

Published in the United States of America in 2021 by Lynne Rienner Publishers, Inc. 1800 30th Street, Suite 314, Boulder, Colorado 80301 www.rienner.com and in the United Kingdom by Lynne Rienner Publishers, Inc. Gray’s Inn House, 127 Clerkenwell Road, London EC1 5DB www.eurospanbookstore.com/rienner © 2021 by Lynne Rienner Publishers, Inc. All rights reserved

Library of Congress Cataloging-in-Publication Data A Cataloging-in-Publication record for this book is available from the Library of Congress. ISBN 978-1-62637-968-8 (hc) 978-1-62637-970-1 (pb)

British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. Printed and bound in the United States of America The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1992. 5

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[Republicans] didn’t start thinking of the old common fellow till just as they started out on the election tour. The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickles down. Put it uphill and let it go and it will reach the driest little spot. But he didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellows’ hands. —Will Rogers

Contents

Acknowledgments

1 2 3 4 5 6 7

ix

Trickle-Down Economics: Myths and Fairy Tales

1

Wages and Benefits: No Fair Share for Workers

13

The Tax System: Class Struggle Laid Bare

33

Social Welfare: We’re All on the Dole

57

Corporate Welfare: Aid for Dependent Corporations

81

The US Financial System: A Casino Economy

103

Racialized Redistribution: Affirmative Action for White People

121

8 Markets and Power: The Invisible Fist 9 Reversing the Flow: Toward a More Democratic Political Economy

Bibliography Index About the Book

143 163 179 197 205

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Acknowledgments

I thank the anonymous reviewers for their helpful suggestions and the editorial and production teams at Lynne Rienner Publishers for their excellent work. I thank Lynne Rienner for her many helpful and creative suggestions regarding both content and style. I thank Baldwin Wallace University for ongoing financial assistance in the form of summer grants and a 2020 sabbatical. I also thank the Baldwin Wallace University students who contributed research assistance: Anxhela Dalipi, Charley Neusse, Jack Smith, and, especially, Cameron Monaghan. I also thank Jackie Yavornitzky for her ongoing support of all faculty work in the department. I thank Haesook Chae, Lauren Copeland, Jason Kieber, Judy Krutky, Javier Morales-Ortiz, Barb Palmer, and Tom Sutton for their collegiality and friendship. Thanks to Kelly Coble, Beth Hiser, and Steve Hollender, whose friendship and music have helped sustain my enthusiasm for this project. My hearty thanks go to Mike Riley for his generous critique of the manuscript. His expertise on tax policy proved especially helpful. I thank Katherine Kratz. Her keen eye for both content and style helped improve the manuscript at multiple points. ix

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Acknowledgments

I absolve all these contributors of any responsibility for the shortcomings of this book. Sometimes I ignored their good advice, at my own peril. I thank Katherine Kratz again—and again and again—for sharing her life with me. The same goes for Leon Kratz. Thanks to them, I am rich in family.

1 Trickle-Down Economics: Myths and Fairy Tales

One of the most durable myths of US political economy is that we take from the rich and give to the poor. The only relevant questions are how much this penalizes the rich for their hard work and how much it rewards the undeserving poor. This book tells a different story. The Trickle-Up Economy shows how we take from the poor and middle class and give to the rich. The US political economy has always distributed income and wealth unequally. Since approximately the 1970s, however, the magnitude of inequality has surged. The trend toward greater inequality has been well documented and analyzed.1 Rather than repeat those analyses, this book highlights some of the major causes of the upward redistribution of income and wealth in the United States, past and present. Most Americans know that inequality is a defining characteristic of life in the United States. How could they not know, with constant reminders in a multitude of media of the fabulous lives of the rich and powerful, in stark contrast to their own struggles to stay afloat? Just how unequal has it gotten? A few preliminary illustrations are warranted (all figures are adjusted for inflation):2

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The Trickle-Up Economy

• The average income of the top 0.1 percent in 2018 was $7,225,746, compared to $36,797 for the bottom 90 percent. • Since 1979, the before-tax incomes of the top 1 percent of US households have increased nearly seven times faster than those of the bottom 20 percent. • Since 1970, the top 1 percent has doubled its total income share from 11 to 22 percent, while the official poverty rate has held steady at 10 to 14 percent. • The average real incomes of the top 1 percent rose 5.7 percent annually from 1978 to 2015, while the average real incomes of the bottom 50 percent rose 0.0 percent. • Between 1980 and 2014, the top 1 percent saw income gains of 205 percent, and the top 0.001 percent saw gains of 636 percent, while the average pretax income of the bottom half of the individual income earners stagnated at approximately $16,000 per adult. • In 2019, three men (Warren Buffett, Bill Gates, and Jeff Bezos) owned more wealth than the bottom half of Americans. • In 2016, the average household wealth of the top 1 percent was $26,401,000. For the bottom 40 percent of US households, it was −$8,900. • The richest 5 percent of Americans own two-thirds of all wealth in the United States, while the bottom 90 percent owns just 20 percent. In short, income growth has been negligible for fully half of the US population for over a generation, while for the richest Americans it has expanded dramatically. The bottom half of US income earners have been denied a minimally fair deal in the US economy, and the situation has gotten worse since the 1970s. Most ordinary Americans can also likely tell you in general terms why inequality is so pronounced: because “the system is rigged” against them and to the advantage of the rich and powerful. But do they know the details? Can they identify the specific features of US political economy that drive radical inequality? Do they know in plain terms how exploding riches at the top are the result of policies that redistribute upward? How gains at the top come at the expense of lowerand middle-class Americans?

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Not so much. This book focuses on those specific features of US political economy that create radical inequality. They are embedded in our everyday lives and normalized. Yet most Americans are unaware of them or have a distorted or incomplete understanding of them. We are constantly asked by policy elites and ideologues to believe that the US economy is fair—that hard work and talent will pay off. Millions of ordinary Americans know firsthand that this is not true. In multiple, everyday ways deeply embedded in normalized practices, US political economy advantages a minority of people who already have wealth and power and are positioned to exploit the rules of the game, while disadvantaging everyone else. At no time has US political economy been completely fair. But it has undeniably been fairer than it is now. Look no further than the post–World War II era of shared prosperity, when all Americans, as measured in quintiles, increased their incomes at nearly identical rates. This changed when dominant policymakers embraced the strange notion that we must indulge the rich in order for everyone to prosper. This idea found its most vivid expression in the fairy tale world of supply side economics, more colloquially known as trickle-down economics. This quasi-scientific theory found favor initially in the Ronald Reagan administration and has dominated Republican policymaking since then, despite relentlessly damning evidence against it. The Trickle-Up Economy is in one sense a misleading title, as the preceding illustrations indicate. Looking at only the cumulative effects of the upward redistribution of income and wealth in the United States over the past forty years, “trickle” hardly captures the magnitude of the upward surge. A better image would be a river torrent flowing uphill in defiance of gravity. That said, this book focuses on the springs and tributaries that accumulate to form that river. It addresses the steady upward flow of income and wealth from various sources, some of them familiar and obvious, others not so much. They end up in a vast reservoir of wealth on which float the yachts of rich Americans. Yes, many programs at all levels of government distribute tax dollars, at least some of them taken from the rich, into the

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hands of the poor and middle class, either as cash or as services. But this represents only a small portion of the redistribution of money in the United States. Most of it moves in the other direction. Although this book primarily addresses economic inequality and the policies that create and sustain it, separating economic inequality from its other forms is impossible. Most importantly, money buys opportunity, and it buys political power. The widening gap in income and wealth further widens gaps in opportunity and political power that have always defined American life. The result has destroyed the American Dream for over half the population. And it has been catastrophic for democracy, as the United States looks more and more like a plutocracy.

Trickle-Down Economics in Theory The ethically defensible response to this surge of inequality and upward redistribution of income and wealth should be public policies designed to stem and even reverse it, in order to restore some semblance of basic fairness to US political economy. Perversely, however, despite occasional lurches in that direction, overall public policy has tended to go in the opposite direction, helping drive the surge in inequality. Republican lawmakers, paying homage explicitly or implicitly to supply side economics,3 have crafted legislation that makes the problem worse. More informally, we know this approach as “trickle-down” economics. Democrats, beholden to an electorate either indifferent to or spooked by misinformation from trickle-down advocates, have at best been ineffective at countering the narrative and have at worst actively perpetuated it. Economist Paul Krugman calls it zombie economics—a fitting title.4 Factual evidence has effectively killed it several times, to the point that it has largely disappeared from economics textbooks, save as a historical footnote. Yet it rises again and again from the dead in the policies embraced by Congress. At the heart of supply side economic policy is the claim that we should cut taxes, especially on the wealthy. This will

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supposedly spur economic activity on the supply side of the demand/supply equation. Deregulation, according to this theory, should accompany the tax cuts in order to free the economy from restraints. And best of all, the tax cuts will pay for themselves. There are several options for cutting taxes on the wealthy, including lowering the top individual income tax rate, lowering the capital gains tax rate,5 lowering or eliminating corporate income taxes, and lowering or abolishing estate taxes. In theory, with more money in their pockets and fewer regulations to contend with, the wealthy will invest in productive ways that create new jobs in the United States. Ordinary people can get those jobs, and this puts more money in their pockets. Thus, according to the theory, everyone benefits from the tax cuts through the trickle-down effect. Moreover, the increased economic activity will result in higher tax revenues flowing into the Treasury, paying for the initial tax cuts. This is the so-called Laffer Curve, famously drawn by economist Arthur Laffer on the back of a napkin in 1974 to illustrate his prediction of higher tax revenues generated by cutting taxes on the wealthy.6 At a superficial level, this all sounds plausible. A closer look, however, suggests skepticism for several reasons. First, the claim that the wealthy will spend the extra money by investing it. Maybe, or maybe not. They may choose instead to spend it on a second or third or fourth home or another luxury car. Or they may buy gold or some other commodity that does not function as a productive investment. Second, the claim that the investment will be productive. The wealthy can indeed invest in new equipment, new factories, new technology, worker training, and other avenues that will produce good jobs for American workers. Alternatively, they can invest in job-killing corporate takeovers, mergers, and financial speculation. Third, the claim that the productive investment will create new jobs in the United States. Yes, that is a theoretical possibility. But so is investment in overseas production, where new job creation often displaces American workers who are not eligible for those new jobs. And as any modestly attentive observer knows, that has been the dominant story of the US political economy over the last several decades.

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And fourth, the claim that benefits from this economic surge will trickle down to common people. Maybe, maybe not. It depends. Those added funds can be converted into new jobs with higher compensation for average workers, or they can be used to run up the compensation of CEOs and other senior management, paid out as shareholder dividends, or used by corporations to buy back their own corporate stock to drive up its value. Those profits can also be paid out as bonuses for senior management and reckless speculators.

Trickle-Down Economics in Practice The three main supply side tax cuts for the rich occurred during the Ronald Reagan (1980–1988), George W. Bush (2000– 2008), and Donald Trump (2016–2020) administrations. Beneficiaries of the Reagan and Bush tax cuts used the extra money primarily to fund unproductive investment in corporate takeovers and financial speculation and to invest overseas and offshore. This fueled the shift in the United States from wellpaying manufacturing jobs to low-paying service jobs, a precipitous decline in the share of productivity and GDP gains claimed by labor, and dramatically increasing inequality.7 The Trump version, enacted in December 2017, led with a sharp reduction in corporate income taxes that lowered the top rate from 35 to 21 percent. This left corporations flush with cash. Rather than investing that cash productively in new technology, equipment, factories, and worker training, and rather than increasing labor’s share of profit, they used the cash mostly to buy back company stock and pay dividends to stockholders. In 2018, the total dollar amount spent by American S&P 500 companies on their own stock reached a record high of nearly $700 billion.8 Since most stock is held by the top 20 percent of Americans, the resulting run-up in stock value mostly benefited them. In a survey of 116 companies conducted in October 2018 by the National Association for Business Economics, 81 percent said they had not changed their investment plans or hiring decisions because of the Trump tax cut. The most noteworthy results of the Trump corporate tax cut included a surge in purchases by corporations of their own stock and

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more dividends to stockholders, estimated at $1.3 trillion total for 2018. Apologists for the tax cut cite a surge in economic growth from the 2017 level of 2.2 percent to between 2.9 and 3.2 percent (sources vary) during 2018, but it had already declined to approximately 2.0 percent by the first half of 2019. This is comparable to a sugar high experienced during a candy binge, followed by an abrupt crash. It is worth noting as well that the economy grew at 3.2 percent in 2015 under Barack Obama, while still struggling to emerge from the cumulative weight of the Great Recession, and that the brief growth surge under Trump was also at least partly the result of Keynesian deficit spending. A New York Times analysis showed no statistically significant relationship between the Trump tax cuts and subsequent investments by major corporations. On the contrary, the analysis showed that, starting in January 2018, shortly after the tax cut went into effect, S&P 500 corporations spent three times more on buybacks and dividends that benefited their affluent stockholders than they did on investments.9 The creation of good jobs is central to the theory of trickledown economics and crucial to its perceived legitimacy. So it must be emphasized that many new jobs, if and when they have been created, have not paid living wages. Over 20 million new jobs were created during the Reagan administration. Unfortunately, most of them paid low or very low wages. That trend continued during the 1990s, when the fastest-growing jobs paid too little to support a middle-class lifestyle for families. To keep up, American families have had to steadily increase the number of hours they work. As for the Trump version, average wages increased by 3.2 percent in the United States during 2018. Adjust that number for inflation at 1.9 percent in 2018 and you’re left with an overall wage gain for average workers of 1.3 percent. At that rate, it would take several generations to make up the lost wages experienced under the pretense of trickle-down since its first iteration in the Reagan administration. The Covid-19 pandemic further undermined wage growth, driving it into negative territory.10 The inescapable conclusion: any trickle-down effect benefiting workers has been either nil or reduced to an imperceptible drip. Overall, US workers have lost ground both absolutely and

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in comparison with the growing fortunes of rich Americans who have benefited directly and generously from the tax cuts. Did the tax cuts for the wealthy at least pay for themselves? Emphatically, no. Other than needlessly and dramatically increasing the wealth of the already affluent, the most noteworthy impact of the three most prominent applications of supply side theory has been exploding deficits and a growing national debt. Both increased dramatically under Reagan and Bush II, nearly doubling under Reagan and increasing some 57 percent under Bush II.11 All credible estimates of the impact of the Trump tax cuts have arrived at the same conclusion: rapidly rising budget deficits into the foreseeable future, even subtracting the massive fiscal impact of the coronavirus pandemic starting in 2020. Trump’s Treasury secretary, Steven Mnuchin, boasted that the Trump tax cut would not only pay for itself but help pay down the national debt. Instead, in the first eleven months after its passage, the deficit surged to $912 billion, a 39 percent increase over 2017. By September 2018, the overall national debt had increased from $19.9 trillion to $21.5 trillion. By January 2020, the debt was $23.2 trillion, with trillions more predicted by the Congressional Budget Office (CBO) and other nonpartisan analysts. And that debt carries a direct cost in interest payments, expected to reach nearly $1 trillion per year by 2028, according to an already outdated September 2018 estimate by the CBO, more than the federal government spends on defense. That estimate would now be considerably higher to account for federal borrowing to address the Covid-19 pandemic. The deficit for 2020 alone is now expected to exceed $3.3 trillion, over three times greater than prepandemic estimates. President Trump’s own Office of Management and Budget (OMB) projected a 2019 deficit of $1.1 trillion and nearly $10 trillion over the next ten years. The nonpartisan CBO projected the ten-year deficit at closer to $11.5 trillion.12 Again, these estimates preceded the onset of the Covid-19 pandemic. When supply side tax cuts result predictably in deficits, sponsors of those tax cuts simply blame other people and other factors. By late 2018 Republican leaders, faced with growing deficits, tried to shift the blame to spending on entitlements rather than their own reckless tax cuts for the wealthy. Arthur Laffer, one of the architects of supply side economics, claimed

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that it was Barack Obama’s fault that the Bush II tax cuts resulted in surging deficits. The prospect of an Obama election, he explained, caused everyone to lose confidence, and this deflated the economy, undermining the growth effects of the tax cuts. Better Laffer’s dissimulation, perhaps, than simply denying the fact of deficits, as Treasury Secretary Steven Mnuchin did in January 2020, when he continued to insist that the Trump tax cut would pay for itself.13 Defenders also sometimes acknowledge that short-term deficits are possible or even likely but that longer-term economic growth will eventually make up the difference. Some also claim that the benefits from the tax cuts are actually reaped by state and local governments, whose revenues surge in response to them.14 The only federal budget surpluses recorded since Laffer drew his curve occurred during the Bill Clinton administration, which raised taxes on the wealthy. At a minimum we can conclude that increasing taxes on the wealthy does not sabotage the economy; in fact, strong economic growth can still occur.15 Not incidentally, deregulation espoused by supply siders and enacted into law under Republican administrations undermined the stability of the global financial system. This contributed to the Great Recession and drove the federal budget even deeper into deficit as Congress and the president, first under Bush and then under Obama, passed bailout and fiscal stimulus packages to rebuild the economy. The 2017 Trump tax cuts represented one more step toward achieving the long-term policy objectives of the libertarian, antigovernment, free marketeer wing of the Republican Party. Republicans have long used this strategy of cutting taxes— under the guise of supply side economics and how it will supposedly increase tax revenues—to “starve the beast” by making it more and more difficult to fund badly needed programs that benefit everyone (for example, infrastructure, public education) or that specifically target lower-income Americans (for example, public assistance programs). Trump’s budgets reflected this in their proposed steep cuts to Community Development Block Grants and to the US Department of Health and Human Services, affecting programs such as Meals on Wheels and senior nutrition programs. The same budgets proposed huge increases in military spending, border security, and tax cuts that disproportionately benefit the wealthy.

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Policy negotiations during the summer and fall of 2020 to address the Covid-19 pandemic starkly revealed competing redistributive priorities. The Democratic-controlled House of Representatives twice passed a $2.2 trillion to $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act that offered support for lower- and middle-income individuals and families comparable to the earlier Coronavirus Aid, Relief, and Economic Security Act of March 27, 2020. At a minimum, it would not have made inequality worse. The Republicancontrolled Senate balked, offering instead a much leaner package, topping out at around $1 trillion, that did comparatively little to support lower- and middle-income individuals and families. They continued to favor tax cuts that would worsen inequality. The final legislation, enacted in the closing days of 2020, committed less than $1 trillion total. Politicians need not actually believe in trickle-down economics to support it. Voters love a tax cut, especially when misled into thinking it will benefit everyone and reassured that it will pay for itself. In one of his last speeches before leaving office in January 2019, former Speaker of the House Republican Paul Ryan expressed sympathy for the plight of average Americans and promised that cutting taxes for the wealthy would benefit those average Americans. “Most people, half the people in this country, live paycheck to paycheck, so there’s a lot of economic anxiety,” he noted, failing to acknowledge his own party’s contribution to that anxiety by dismantling the safety net and deregulating the financial industry. As a “key solution” to this economic anxiety, Ryan advocated “faster economic growth, more jobs,” delivered through tax cuts for the wealthy.16 And, of course, the tax cuts would pay for themselves. In addition to the empirical evidence against supply side economics, a strong ethical argument can be made against it. Why must ordinary Americans’ gains in financial status and stability be bought indirectly by first enriching the already wealthy and hoping for residual benefits? We can support Americans on the bottom directly, without further enriching the already rich, through increases in the minimum wage, prounion policies, a steeply progressive tax system, and increased social welfare spending, for example. The con job of trickle-down economics is only part of this story of the massive upward redistribution of income and wealth

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in the United States since the 1980s. The following chapters address the many ways we redistribute upward. Some of them are hidden in plain sight, normalized, and taken for granted, while others are hidden in dark corners of US culture and society. The following chapters address, in turn, wages and income, the tax system, social welfare spending, corporate welfare, the US banking and financial system, the racialized character of trickle-up economics, and so-called free markets.

Notes 1. For a sampling, see Stephen Caliendo, Inequality in America: Race, Poverty, and Fulfilling Democracy’s Promise (New York: Routledge, 2018); David Grusky and Jasmine Hill, eds., Inequality in the 21st Century (New York: Routledge, 2018); Thomas Piketty, Capital in the 21st Century (Cambridge, MA: Harvard University Press, 2014 [2013]); Thomas Piketty, The Economics of Inequality (Cambridge, MA: Harvard University Press, 2015 [1997]); Thomas Shapiro, Toxic Inequality: How America’s Wealth Gap Destroys Mobility, Deepens the Racial Divide, and Threatens Our Future (New York: Basic Books, 2017); and Joseph Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future (New York: W. W. Norton, 2013). Several research and advocacy organizations have carefully charted the rise in inequality; see, especially, Economic Policy Institute, United for a Fair Economy, Dollars & Sense, and Institute for Policy Studies. 2. Sources include Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, “Economic Growth in the US: A Tale of Two Countries,” VOX, March 29, 2017, https://voxeu.org/article/economic-growth-us-tale-two-countries; Greg Leiserson, Will McGrew, and Raksha Kopparam, “The Distribution of Wealth in the United States and Implications for a Net Worth Tax,” Washington Center for Equitable Growth, March 21, 2019, https://equitablegrowth .org/the-distribution-of-wealth-in-the-united-states-and-implications-for-a -net-worth-tax; “Income Inequality in the United States,” Institute for Policy Studies, https://inequality.org; and Elise Gould, “State of Working America, Wages 2018,” Economic Policy Institute, February 20, 2019, www.epi.org /research/state-of-working-america. 3. See, for example, Brian Domitrovic, Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity (Wilmington, DE: ISI Books, 2014); Arjo Klamer and Alan Reynolds, Monetarism and Supply Side Economics: Free Market Thought in the Late 20th Century (Edinburg, PA: Carmichael & Carmichael, Inc., 1988); Thomas Sowell, “Trickle Down” Theory and “Tax Cuts for the Rich” (Stanford, CA: Hoover Institute Press, 2012); and Lin Xiao, New Supply Side Economics: The Structural Reform on Supply Side and Sustainable Growth (Singapore: Springer Nature Press, 2017). Supply-side economics is in turn one part of a larger neoliberal shift in political economy occurring in the United States and worldwide since approximately the mid-twentieth century. On neoliberalism and its policy applications, see, especially, Jack Rasmus, The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump (Atlanta: Clarity Press, 2020).

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4. Paul Krugman, “From Voodoo to Evil-Eye Economics,” New York Times, August 23, 2019. In an honest moment, former president George H. W. Bush dubbed it “voodoo economics.” 5. As economist John Miller sarcastically points out, this option of cutting capital gains taxes is neoliberal economists’ and Wall Street Journal editors’ “surefire cure for every economic problem.” John Miller, “Out of Policy Ideas? Cut Capital Gains Taxes!,” Dollars & Sense (July/August 2020): 9–10. 6. Total taxes in the United States average approximately 24 to 25 percent of GDP, compared to nearly 50 percent in the northern European countries, over 40 percent for all EU countries, and an OECD average of approximately 34 percent, making the United States one of the least-taxed OECD countries. See “Briefing Book,” Tax Policy Center, www.taxpolicycenter.org /briefing-book. 7. Walter Picca, Why the Reagan and Bush Tax Cuts Are Unfair, 2nd ed. (New York: iUniverse, Inc., 2007 [2005]); Andrew Fieldhouse, “The Bush Tax Cuts Disproportionately Benefitted the Wealthy,” Economic Policy Institute, June 4, 2011, www.epi.org/publication/the_bush_tax_cuts_disproportion ately_benefitted_the_wealthy; Andrew Fieldhouse, “Ten Years Later, the Bush Tax Cuts Remain Unfair, Ineffective, and Expensive,” Economic Policy Institute, June 6, 2011, www.epi.org/publication/ten_years_later_the_bush _tax_cuts_remain_unfair_ineffective_and_expensive; Lee Price, “The Lesson of the 1981 ‘Supply-Side’ Tax Cuts,” Economic Policy Institute, June 16, 2004, www.epi.org/publication/webfeatures_snapshots_06162004. 8. “Record Level of Share Buybacks,” Union Investment, http://union -investment.ch/home/Capital-Market/Themen_Record_level_of_share _buybacks.html. See also Arthur MacEwan, “Stock Buybacks: Any Positive Outcome?” in Current Economic Issues, ed. James Cypher et al., 23rd ed. (Boston: Economic Affairs Bureau, 2019), 43–45. 9. Jim Tankersley and Matt Phillips, “Trump’s Tax Cut Was Supposed to Change Corporate Behavior. Here’s What Happened,” New York Times, November 12, 2018; Jim Tankersley, Peter Eavis, and Ben Casselman, “Intense Lobbying by FedEx Slashed Its Tax Bill to $0,” New York Times, November 17, 2019. The economic gyrations caused by the Covid-19 pandemic rendered growth comparisons for 2020 irrelevant. 10. “United States Wages and Salaries Growth, 1960–2020,” Trading Economics, https://tradingeconomics.com/united-states/wage-growth. 11. Kimberly Amadeo, “US Budget Deficit by President,” The Balance, May 23, 2020, www.thebalance.com/deficit-by-president-what-budget-deficits -hide-3306151. 12. “Budget and Economic Data,” Congressional Budget Office, www .cbo.gov/about/products/budget-economic-data#3. 13. Editors, “There’s No Such Thing as a Free Tax Cut,” New York Times, January 23, 2020. 14. See, for example, Brian Domitrovic, “The Pillars of Reaganomics,” The Imaginative Conservative, November 12, 2014, https://theimaginativeconservative .org/2014/11/pillars-reaganomics .html. 15. Nancy Stokey and Sergio Rebelo, “Growth Effects of Flat-Rate Taxes,” in Journal of Political Economy 103, no. 3 (June 1993): 519–550, found that the steep increases in tax rates after the implementation of an income tax in 1913 produced no apparent effect on the average growth rate of the economy. 16. Carl Hulse, “Paul Ryan Puts It All on the Line in Tax Fight,” New York Times, November 4, 2017.

2 Wages and Benefits: No Fair Share for Workers

Why do so many Americans feel overworked and underpaid? Because they are overworked and underpaid. They are doing their part to transfer income and wealth upward through the wage and benefit system. Millions of Americans struggle to make ends meet while working jobs that pay less than a living wage. The difference between what they are paid and a living wage represents a subsidy of their employers. Collectively, the net amount represents a staggering fortune that goes into the pockets of business owners and managers and, more recently, financial speculators on Wall Street. In a reasonably just wage and benefit system, that money would be paid to workers instead. That it is not contributes to the huge disparities in income and wealth that are now hallmarks of US political economy. According to the MIT Living Wage Calculator, in 2019 an average US family of four (two adults working full-time and two children) required an annual income of $68,808 ($32,404 each), or $16.54 per hour. This figure varies depending on the family’s state of residence. Since eight of the ten occupations with the most job openings in 2020 pay less than approximately $20,000 a year, or $9.62 per hour, the problem is obvious.1

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Multiple studies in recent years have estimated that nearly half of American workers earn less than $15 an hour, and nearly a third earn under $12 an hour.2 A 2018 United Way study found that 51 million households (43 percent of the US total) do not have sufficient income to cover basic living expenses, including housing, food, child care, health care, transportation, and a cell phone.3 Social Security Administration data shows that 54 percent of wage earners (including part-time workers) earn less than $35,000 in annual income. At the bottom, a single mother earning the federal minimum wage of $7.25 an hour with two children would need to work 135 hours per week to earn the equivalent of a living wage. The US Department of Labor estimates that all of the top ten occupations projected to have the most job openings between 2018 and 2028 are low-wage service-sector jobs, and only ten of the thirty-one fastest-growing occupations pay more than $50,000 per year.4 The coronavirus pandemic beginning in 2020 illustrates the vulnerability of low- and middle-income workers to employment disruptions. Most of the jobs lost to the pandemic were in low-wage occupations, especially service-sector jobs. Workers in these occupations saw their ability to pay basic bills seriously compromised by partial or complete loss of an income that was already too low. Congress passed a $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act in March 2020 that increased unemployment benefits and added onetime checks of $1,200 per individual to some household budgets. Desperately needed further support finally cleared Congress and President Donald Trump in late December 2020. However, congressional disagreement over terms led to cutbacks of approximately 50 percent in augmented unemployment benefits and stimulus checks, ensuring ongoing precarity for low-income and many middle-income families. Meanwhile, those who did remain employed during the pandemic, either full- or part-time, saw wage stagnation or decline. This included workers in occupations deemed essential to fighting the pandemic, despite the daily risks they faced on the job.5 Nineteenth-century feminists argued that they should enjoy the right to vote just because they were humans with dignity and moral status equal to men. Later feminists broad-

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ened this argument to include other forms of equality, such as the right to own property, to equal educational and job opportunities, and to equal pay for equal work. African Americans from Frederick Douglass to W. E. B. DuBois to Martin Luther King, Jr. argued that they should enjoy civil rights just because they were humans with dignity and moral status equal to White Americans. Like contemporary feminists, African Americans have broadened this to include other forms of equality and freedom. Aside from the holdouts wearing sheets and etching swastikas on their shoulders, who doubts the truth of their arguments today? Putting their arguments into practice, albeit incompletely, brought improvements in the daily lives of women and African Americans, greater fairness and justice, and an expansion of democracy in the United States. Today we should make the same argument about wages: any adult who works hard should be paid at least a living wage as a human being with innate dignity, deserving of the respect and autonomy afforded by a living wage. This is the contemporary equivalent of equal rights for women and African Americans. Anything short of a living wage is a betrayal of those rights and workers’ human dignity. Because this basic principle of fairness is systematically abridged, income and wealth are systematically redistributed upward from underpaid workers to owners and managers. Hidden in plain sight, this upward redistribution is ubiquitous and normalized, taken for granted and rarely challenged. And challenges, when they do surface, are met with pseudoscientific rationalizations, accusations of class warfare, and blame-the-victim blowback. Blaming the victim has a rich history in the United States. It is embedded in the bootstrap narrative that defines the American myth of opportunity. Even a founder as relatively egalitarian as Thomas Jefferson advocated jailing “vagabonds” for “wasting their time.” Barry Goldwater, 1964 Republican presidential nominee, blamed those on the socioeconomic bottom for having “low intelligence and low ambition.” Ronald Reagan infamously concocted a “welfare queen” living handsomely off taxpayers while watching daytime television on her couch. Fox News personality Bill O’Reilly said of poor people, “You gotta look people in the eye and tell ’em they’re irresponsible and lazy. . . .Because that’s what poverty is,

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ladies and gentlemen.”6 Each of these attacks on socioeconomically marginalized people discounts or ignores systemic obstacles to success faced by people on the bottom rungs of the income ladder.7

Capitalism 101: Low Wages, No Benefits Most low-wage workers receive no affordable health insurance or other benefits. Many of their jobs are contingent, meaning they provide no job security. Corporate managers sell this as “flexibility” in managing payroll. From the worker’s side, it means added challenges managing a household budget in the face of uncertainty about the number of hours worked each week and whether the job will disappear overnight.8 Consider the stark implications. In this, one of the richest countries on the planet, nearly five in ten workers earn wages that either leave them in poverty or barely lift them out of it, while depriving them of a modicum of security. This grim situation has become utterly normalized and routine. These workers are doing their part to enrich the wealthy. They are subsidizing the fortunes of people at the top. Labor represents the highest cost for many employers, especially in service sectors of the economy. Saving money on labor thus becomes a dominant strategy for increasing profitability. Senior managers are generously rewarded for cutting labor costs, either by eliminating jobs or lowering workers’ wages and benefits. Working people in the United States have always had to struggle for a fair labor deal. Whatever gains they made into the mid-twentieth century, the last several decades have seen an escalating trend toward lower wages and fewer benefits for most working Americans. This trend coincides with the declining union movement in the United States and the waning commitment among policymakers to an adequate minimum wage. The largest share of low-paying jobs is in service-sector occupations, which also happen to be where the most projected job openings for the upcoming decade are found. In order from the top, these occupations include food preparer, cashier, retail salesperson, restaurant wait staff, personal care aide, general

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laborer, customer service representative, office clerk, janitor and cleaner, and stock clerk.9 Oddly, postsecondary teachers and registered nurses are listed as “very high” wage earners, making one wonder if the English language can adequately characterize the wage levels of those who actually do earn very high wages. During the post–World War II period from 1947 to 1979, an era of generalized prosperity in which all income groups shared, family income grew at a nearly equal rate across all five quintiles, with the bottom income quintile actually growing at a slightly faster rate than the top quintile. During the same period, productivity increased by 97 percent, while hourly compensation increased by 91 percent. Compare that to the subsequent period from 1979 to 2015, when the lowestquintile families actually lost income at an average rate of 0.3 percent per year, while the incomes of those in the top quintile grew at an average rate of 1.3 percent per year. And while productivity increased overall by 73 percent, hourly compensation only increased overall by 11 percent.10 This clearly indicates an acceleration of the rate of upward redistribution in income and wealth. Despite low unemployment between 2017 and 2019, real wages scarcely increased after adjusting for inflation. Wage growth for 2018 and 2019 was calculated at an inflationadjusted 1.3 percent for the two years. While Republicans treated that as vindication of the 2017 Trump supply side tax cuts, the increase adds a relatively meager fifteen cents per hour annual raise for typical low-wage workers and an eightyfour cent raise for the average private-sector worker. This is hardly cause for celebration, given the ground that needs to be made up after decades of stagnating wages. As both symptom and cause of upward redistribution, CEO pay has surged dramatically in the last fifty years. As recently as 1970, the average CEO earned twenty times the pay of the typical worker for that company. Thirty years later, the average CEO earned over 400 times the pay of the typical worker. In 2017, with typical workers’ wages and overall family income stagnating or even declining, the CEOs of S&P 500 companies earned an average pay of nearly $14 million. Many of these CEOs are rewarded handsomely for cutting costs precisely by eliminating jobs or slashing wages

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and benefits. The data on CEO pay for 2018 was even more striking in its lavish rewarding of top earners during a period of scant income growth for everyone else. Tesla CEO Elon Musk topped the list with a compensation package worth a whopping $2.3 billion. Among the top ten CEOs, the ratio of CEO pay to median employee pay ranged from approximately 600 to 1,600 times, not counting the two outliers at the very top and bottom. The lowest-paid CEO among the 200 still pocketed $14.5 million. The median CEO pay among the 200 was $18.6 million, a raise of 16 percent from 2017, and the average was $34.4 million, a raise of 124 percent over 2017. Compare these figures to the inflation-adjusted 1.3 percent pay raise received by the average American private-sector worker during 2018.11 Fifty years ago, a Sears salesman could retire with savings exceeding $1 million, garnered in part from company stock awarded as part of the compensation package. An Amazon warehouse worker today, by contrast, who stayed until retirement would leave with only a fraction of that amount. While Sears set aside 10 percent of pretax earnings for worker retirement plans, and in the 1950s workers owned a fourth of the company, Amazon founder and longtime-CEO Jeff Bezos now owns 12 percent of the company and is ranked as the world’s richest person. Amazon drew headlines in 2018 for raising its minimum pay to $15 an hour, but it also ended its employee stock-ownership program. This tale of two corporations reflects a deep shift in political economy that has occurred in the United States over the last fifty years: from an economy in which profit, progress, and success were broadly, albeit unequally, distributed across owners and workers to an economy in which owners and top managers claim most of the rewards. Not incidentally, Sears filed for bankruptcy in October 2018, suggesting perhaps that the Sears model is unsustainable in today’s neoliberal economy.12 Amazon and most other US corporations today are far less willing than Sears to widely share the financial rewards of success. Profit-sharing and defined-benefit pensions have virtually disappeared from the US corporate landscape, while senior executives and shareholders take a growing share of corporate profit, leaving relatively little for typical workers.

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Policymakers Cause Wage Inequality Defenders of the status quo often find it convenient to attribute growing inequality to systemic, structural factors allegedly outside the control of policymakers. These typically include globalization, technology, and impersonal market forces. A closer look, however, shows that policymakers do their part to drive wage inequality. First, as a simple, direct measure of our collective failure to constrain inequality in the United States, look no further than the minimum wage. Minimum wages are set through a combination of federal, state, and local legislation. The federal government established a minimum wage in 1938 at $.25 an hour ($4.61 in 2020 dollars). By 1950 it had risen to $.75 an hour. Adjusted for inflation, it peaked in 1968 at $1.60 an hour ($11.97 in 2020 dollars). Last raised in 2009, the federal rate sat at $7.25 an hour in 2020. If the 1968 minimum wage had subsequently kept pace with productivity growth into the present, the current minimum wage would have been $24 an hour in 2020.13 By 2020, some twenty-nine states had enacted their own minimum wage laws that exceed the federal rate. Some state levels are tied to cost-of-living adjustments that mandate annual increases pegged to inflation. None of these statemandated higher minimum wages come close to the $24 an hour that would be the minimum wage had it kept pace with productivity growth. And none reach living wage levels. Having staved off increases in the minimum wage, policymakers have also resisted attempts to impose a maximum wage on CEOs and other senior management. Legislation has occasionally been introduced to penalize corporations whose ratio of CEO pay to median worker pay exceeds a certain amount. These bills have drawn little support. Second, most US taxpayers are unaware of how they subsidize corporations that pay low wages and offer few if any affordable benefits. Corporate welfare merits a separate discussion and will be addressed at length in Chapter 5. In the meantime, one form related to the wage and benefits system deserves highlighting.

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When typical low-wage workers get sick or injured, who pays for their medical care? The employees’ comprehensive, affordable health care insurance? Probably not. The nearby charity hospital? Maybe. The employees themselves? Sometimes, and, if so, with potentially catastrophic results for their overall financial health. But the hidden-in-plain-sight answer is this: the American taxpayer. Because in the absence of an affordable health care plan offered by employers, and in the absence of sufficiently high wages allowing employees to purchase comprehensive health care coverage, the government must cover the cost. And the government must, of course, collect taxes in order to pay the costs. So the money that could have been deposited in taxpayers’ bank accounts flows instead into the US Treasury; it is then paid out as an indirect subsidy of business and corporate owners who profit from depriving employees of adequate coverage. And if these same employees earn too little to buy groceries or pay rent? Taxpayers make up the difference. One estimate from 2014 put the number at $6.2 billion per year in taxpayer subsidies to Walmart alone for food stamps, Medicaid, and subsidized housing. According to a more recent estimate, Walmart is responsible for 18 percent of the $61 billion in food stamps used in 2018. This gets even more perverse. Where do many of those low-wage shoppers buy their groceries? Yes, at Walmart, because it is cheap, thanks in part to the low wages it pays. In 2013, approximately $13.5 billion in food stamps, out of a total of $76 billion, was spent at Walmart stores. This too increases Walmart’s profits, and these are directed into the bank accounts of its owners. The notion of a “Walmart tax” imposed on taxpayers by Walmart is contested by some defenders of the company who object on the grounds that welfare does not decrease the wages of its employees. In one contorted defense of Walmart, welfare actually increases Walmart wages by forcing the company to essentially outbid welfare in order to motivate people to go to work rather than sit at home on free money. But that misses the point, which is that in the absence of a living wage with adequate benefits, the government is forced to step in with public assistance support. And taxpayers foot the bill. This lets Walmart and similar low-wage stores off the hook for the cost of public assistance.14

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This story repeats itself over and over in the low-wage sectors of the US economy. According to one estimate, 52 percent of fast-food workers were on public assistance in 2013. In that year, the fast-food industry alone cost the US Treasury $7 billion per year in public assistance subsidies, with McDonald’s alone accounting for $1.2 billion of that amount.15 This means the trend is endemic to the US economy since most of the fastest-growing jobs in America pay “low” or “very low” wages and offer no real benefits. Every fast-food worker, every home health care aid, and every retail clerk paid a low wage and offered little or no affordable health care coverage must get health care when needed by relying on government subsidies, directly or indirectly. Workers who come up short on their monthly food budget must supplement it with food stamps. Same with housing. Over half of those in the bottom 20 percent of US income earners rely on public assistance to make ends meet, to make up the shortfall between what they earn and what it takes to survive. Corporate owners pocket the difference as profit. And US taxpayers foot the bill for this upward transfer of income and wealth. Third, policymakers have helped undermine adequate wages and benefits by attacking labor unions. Unions constrain income inequality between unionized workers and their employers by increasing the bargaining power of labor. Unions also constrain income inequality beyond their own membership by indirectly threatening nonunionized workplaces with organizing efforts.16 This motivates employers of nonunionized workers to increase their compensation packages in order to ward off any motivation for union organizing. In 2018, union members earned approximately 20 percent more than nonunion workers in similar jobs. This “union premium” has been true at least since the 1930s. Labor unions have been under direct, sustained attack by policymakers since Reagan’s demolition of the airline traffic controllers’ union in 1981. By May 2019, at least twenty-eight states had enacted so-called right-to-work legislation that, despite the lovely euphemism, deliberately undermines workers’ power by weakening or destroying labor unions. In 2018, the US Supreme Court ruled in Janus v. American Federation of State, County and Municipal Employees that states can no longer force public employees who are represented by, but

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not members, of the unions to pay union dues. This endorsed the right-to-work legislation already enacted by many states and encouraged similar efforts in other states to enact antiunion legislation. The Janus decision threatened the financial viability of unions, undermining their power. Janus struck down a forty-one-year-old precedent, Abood v. Detroit Board of Education (1977), requiring public-sector workers represented by a union to help pay for the collective bargaining that benefits them. Janus encourages free riding: enjoying a benefit without paying for it. After Janus, nonunion members enjoy all the benefits of union membership but without paying a cent toward the collective bargaining that makes it possible. Any free riding will undermine the financial viability of a union and weaken member solidarity. Right-to-work laws generally emerge from conservative state legislatures whose dominant Republican members despise unions because they generally back Democratic candidates in elections and also because they represent a check on corporate power. Between 2010 and 2012, over 550 bills were proposed in these state legislatures to eliminate or limit collective bargaining rights in the public sector. Most private-sector unions have already been decimated: in 2018, only 6.5 percent of privatesector workers were represented by unions, compared to 34.4 percent of public-sector workers. There is a strong connection between union membership and inequality, as measured by shares of income going to working people and to the wealthiest 10 percent of Americans. In 2019, only some 11 percent of Americans were covered by a collective bargaining agreement, compared to 28 percent in Canada, 89 percent in Finland, and 90 percent in Sweden, three countries where wages tend to be commensurately higher.17 The unofficial minimum wage in Denmark, over $20 an hour in 2018, was attributable to union strength; it was not mandated by government. In the United States, union membership raises worker pay by 10 to 13 percent on average.18 Attacks on publicsector unions are sometimes justified precisely on the grounds that they drive wages downward, thus requiring lower taxes to pay public employees’ wages. Finally, free trade agreements have undermined the wages and benefits of working people in the United States. Whether or not signed into formal agreements such as the North Amer-

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ican Free Trade Agreement, these regimes deliberately increase the ability of capital, but not labor, to move freely across national borders. This clearly benefits capital, while punishing labor, by shifting bargaining power toward capital. In a free trade regime, employers can credibly insist that labor cut its wages and benefits or face the loss of jobs. This dynamic has ensured a steady loss of well-paying jobs from the United States to countries with even lower wages and fewer environmental restrictions.

Excusing Low Wages The current wage and benefit system presumes the validity of extracting as much effort from workers as possible while compensating them as little as possible. The less you pay your workers, the more you earn in profits. Paying low wages is simple economics, made necessary by competition in the market. Paying everyone at least a living wage would require suspension or subversion of the laws of economics. It is therefore a fanciful idea, like wishing that money grew on trees. Yes, as fanciful as equal rights for women and African Americans. The US economy produces more than enough wealth to put the principle of a living wage into practice. What is required is more equality, not absolute equality, and the political will to make it happen. The problem over the last four decades is not that the US economy has underproduced or grown too slowly; it is that the income and wealth from it has flowed disproportionately upward. Defenders of the trickle-up economy insist that if one firm pays its employees a living wage while its competitors do not, the firm will be at a competitive disadvantage, resulting in bankruptcy. The obvious response is to make the living wage universal, across all firms and states. But would this undermine the competitive position of the United States in the global economic system? Would a living wage undermine US firms’ ability to compete in global markets? One way to answer these questions is to look at the economic competitiveness index published annually by the World

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Economic Forum, a pro-business, pro-capitalist foundation based in Switzerland. The United States typically ranks in the top five. But a quick glance at the top ten or fifteen shows that the list is dominated by the social democracies of northern and western Europe. Workers in these countries are compensated generously compared to their counterparts in the United States, with higher wages and better benefits. Additionally, their social welfare systems are more highly developed and generous. Companies in these countries stay competitive while paying living wages and providing a generous safety net. This suggests that there is ample room for growth in wages for US workers without jeopardizing US global competitiveness. A related argument about maintaining US corporate competitiveness is that CEOs and senior management must be paid very generously in order to attract them into positions of leadership and subsequently to motivate them. Reducing CEO pay in order to increase the wages of low-wage workers would, according to this argument, weaken the company’s ability to attract and retain top talent in senior management. Within the normalized context of CEO pay rates of 300 to 400 times the lowest-paid employee, this argument makes some sense. If a particular CEO is offered $10 million to lead one corporation, why would he (almost all CEOs of large US corporations are men) accept a position at another corporation that pays half that in order to compensate its other workers more generously? Rather than simply acceding to this simplistic claim, we could offer an alternative response: if it is true that a CEO will not work hard unless richly compensated at workers’ expense, then he should be punished and shunned for being selfish and greedy. The godfather of global capitalism, Adam Smith, made just such an argument. He believed that anyone motivated purely by self-interest and greed should feel shame and remorse.19 Anyway, who really believes that the typical CEO will work hard only if compensated at levels 300 to 400 times that of other employees? This assumes that greed alone motivates these CEOs and that only exceptionally generous compensation packages will motivate them to work hard. It is worth noting that northern and western European and Asian corpo-

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rations manage to hire competent CEOs at pay scales considerably lower than in the United States, in recent years averaging one-fourth to one-half of US CEO pay. And as recently as the 1960s, the ratio of US CEO pay to typical worker pay was only twenty times higher. In the 1990s it was still a relatively modest sixty to eighty times. In short, unreasonably high CEO pay is a relatively recent development. Let us remember, too, that none of the work done by CEOs would be possible without the contributions of every person who works for that company, including the custodians, secretaries, and food-service workers in the cafeteria. Everyone contributes, and everyone deserves the respect and autonomy afforded by a living wage. Another objection, repeated ad nauseam until one would think it is an immutable law of the universe comparable to gravity, is that raising wages will simply drive price inflation throughout the economy, and this will negate the benefits of raising wages. By raising wages to a living wage, would companies, such as Walmart, that pay low or very low wages need to increase their prices so high as to negate the wage gain of their own workers? In other words, would price increases simply cancel out the wage raises? The answer is nowhere near as simple and straightforward as living wage opponents claim. A lot depends on productivity, economic growth, and profitability. As we have seen, all three have increased steadily, but the benefits have increasingly been claimed wholly by those in top management and shareholders. The fast-food industry provides a clear illustration. If the local burger franchise doubled its employee hourly wages, would it have to double the price of its burgers? Only if each worker produced just one burger per hour. But that is clearly not the case. The wage increase is spread over the total number of burgers produced by workers each hour. In Denmark, where the lowest paid McDonald’s employee earns over $20 per hour, the price of a Big Mac is between sixty cents higher and thirteen cents lower (sources vary) than in the United States. Danish McDonald’s workers are paid the equivalent of 3.4 Big Macs an hour, while their American counterparts earn the equivalent of 1.8 Big Macs an hour.20 And remember that each worker will pay that (modest) premium for a burger only

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once at lunchtime, while earning the higher wage across an entire eight-hour shift. A living wage more than offsets whatever cost increases occur as a result. We also sometimes hear that pay raises result in greater unemployment, as employers respond to the increased payroll costs by cutting jobs and reducing hours. Again, it depends on productivity, economic growth, and profitability. A growing economics literature demonstrates that higher minimum wages produce a net benefit, with employment losses considerably lower than minimum wage critics allege. One study published in 2019 analyzed 138 different statelevel minimum wage increases since 1979 and found no net negative employment effects except some relatively minor ones in sectors related to global trade. 21 Other studies have reached similar conclusions.22 Some defenders of low wages claim that part-timers and teenagers hold most low-wage service-sector jobs, and this justifies the low wages. This misconception about the demographic characteristics of low-wage workers circulates widely. In 2019, the average age of minimum wage workers was thirty-five. More were aged fifty-five or older (14.6 percent) than were teens (9.3 percent). Over half were between the ages of twenty-five and fifty-four. Most tellingly, the minimum wage workers with families were typically their family’s primary breadwinner and earned an average of 52 percent of their family’s income. 23 Earlier data showed similar demographic characteristics of minimum wage workers. In 2015, more than half of all workers earning minimum wage or less were twenty-five or older. Approximately a fourth were ages twenty-five to thirty-four, prime family-building ages. About 20.6 million people—or 30 percent of all hourly, non-self-employed workers eighteen and older—were “near minimum wage” workers. Approximately 58 percent of minimum wage earners worked full-time. More than a fourth had children. And nearly half had at least some college education. 24 Very few of these low-paying jobs included noteworthy benefits. Buried within many of these objections to a living wage are ideological and mythological assumptions that rarely face scrutiny. The most deeply embedded of these assumptions is

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that rich and poor alike get what they deserve. The American Dream promises us that everyone has a reasonable chance to succeed. Apply yourself, play by the rules, work hard, get an education, and you will do well. If you work a dead-end job with low wages and no benefits, you deserve it. You have not invested sufficiently in your own education. You lack the talent and skill, the grit and determination, needed to succeed in a competitive labor market. Conversely, if you are succeeding as measured in financial terms, you too deserve it. You have made the right choices, integrated the right values, applied yourself, developed your innate talents, and honed the skills needed to rise to the top. Some of this is undoubtedly true. But millions of capable Americans work hard every day, follow the rules, and yet struggle to survive. There are numerous reasons for this that have nothing to do with talent, skill, effort, and playing by the rules. A very partial list would include place of birth, race, sex, family connections, medical status, and dumb luck.25 On the other end of the income spectrum, many people who are doing very well do not deserve it in the sense that they did not earn it themselves. They are the beneficiaries of either luck or some form of privilege. In recent decades, the Forbes list of richest Americans typically included a third or more who got their money the old-fashioned way: they inherited it. Others—and this includes Bill Gates, often cited as an example of a self-made man—benefited from a privileged background, in his case access through his private school to early computer technology, well before most people had even heard of computers. In his autobiography, he also admits that his path toward success was paved in part with luck in the form of miscalculations by competitors. Steve Forbes, whose Forbes Magazine publishes an annual list of the 400 richest Americans, inherited his fortune from his father. George W. Bush, our forty-third president, finally struck it rich after bankrupting several business ventures. Each time he stumbled, family members and friends picked him up. Ted Turner inherited a successful advertising agency built by his father. Donald Trump inherited a fortune worth nearly half a billion dollars, according to one 2018 estimate. These are familiar stories, and there are many more.

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The obvious conclusion is that the question of desert is often complicated by factors outside the immediate control of individuals. Simply saying that anyone can succeed in America is an ideological assertion, not a statement of fact. Another common refrain sung by defenders of the current system holds that those who provide the capital are risk takers who deserve rich compensation for taking that risk. Again, there is some truth to this, especially for small business owners. But before making a general principle of this assertion, we should ask who is really at risk here, and what is being risked? Most wealthy people diversify their investments to minimize risk. And should an investment go bad, most have alternative sources of income and other forms of support that minimize catastrophic repercussions in their everyday lives. None face the same daily level of grinding insecurity that almost all lower-income Americans face, where a cut in work hours, a layoff, or a medical emergency results in life-threatening deprivation and suffering. Strip away these justifications for radical inequality in the wage and benefit system, and you are left with power. The people with power use it to maximize their own gain by paying workers as little as possible, to remove government limitations on inequality, to undermine the countervailing power of unions, and to elect politicians who share their privilege and their determination to protect it. Within the context of US capitalism and the assumptions and motivations that drive it, one naturally uses power in the pursuit of self-interest, even if others are harmed in the process. In the absence of a strong labor union or sympathetic policymakers willing to pass pro-worker policies, including a living wage law, workers are at the mercy of owners and senior management.

Democracy and a Fair Wage A living wage, support for unions, and a fair share of productivity gains, economic growth, and profit are policy options within reach with enough political will and grassroots support.

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Add a federal jobs guarantee to achieve full employment at a living wage with benefits. The United States faces many pressing problems unaddressed by markets: repairing and building infrastructure, providing quality K–12 education and free college education, delivering more and better elder care and child care, as well as supplying broader and better access to health care, addressing climate change, and much more. Funding work in these areas will obviously cost taxpayers money. But taxpayers will save money in reduced public assistance spending, and they will help salvage a crumbling democracy threatened by radical inequality. Most people agree that earning your own way is preferable to living off charity or public assistance. All people willing and able to work should earn enough to ensure their ability to support themselves and their families and to live reasonably comfortably. Absent a decent job that pays a living wage with benefits, millions of American workers are denied this basic level of autonomy, essential to a healthy democracy. Let us remind ourselves where economic value originates. Thinkers as diverse as John Locke, Karl Marx, and Pope John Paul II have argued that the source of value is labor, not capital. As Pope John Paul II put it, capital is a “mere instrument” that provides some of the means through which labor creates value and enables humans to realize their “special dignity.”26 Capital alone cannot create value, whereas labor can. Yet, perversely, capital is rewarded disproportionately to its role in the creation of value.27 We have turned the proper relation of labor to capital on its head and hidden it behind ideological and mythological pronouncements about self-made men and the myth of meritocracy. Low wages are a choice, one made by people with power to make that choice and enforce it. Most low-wage workers have relatively few options, given their limited resources, and are essentially backed into a corner of accepting whatever employment deal is offered them. Americans should insist that workers claim a greater share of profits, that they get a fair share of productivity increases, that policy supports unions, and that every US worker earns a living wage or better. In the meantime, income and wealth trickle up from the pockets of low-wage and middle-class workers into the bank accounts of the wealthy.

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Notes 1. Carey Ann Nadeau, “A Calculation of the Living Wage,” Living Wage Calculator, Massachusetts Institute of Technology, March 2, 2020, https:// livingwage.mit.edu/articles/61-new-living-wage-data-for-now-available -on-the-tool; “50 Careers with the Most Job Openings,” Career Profiles, 2020, www.careerprofiles.info/careers-new-openings.html. See the MIT Living Wage Calculator at http://livingwage.mit.edu. Living wage calculations exclude conveniences and luxuries such as restaurant meals, investments, or vacations from the cost of living. 2. See, for example, David Lanham, “53 Million US Workers Are Making Low Wages, Despite Low National Unemployment,” Metropolitan Policy Program at Brookings, November 7, 2019, www.brookings.edu/wp-content /uploads/2019/11/201911_Brookings-Metro_Pressrelease_lowwageworkforce .pdf; “Few Rewards: An Agenda to Give America’s Working Poor a Raise,” Oxfam, June 22, 2016, https://policy-practice.oxfamamerica.org/work/poverty -in-the-us/low-wage-map. 3. Tami Luhby, “Almost Half of US Families Can’t Afford Basics like Rent and Food,” CNN Business, May 18, 2018, https://money.cnn.com /2018/05/17/news/economy/us-middle-class-basics-study/index.html. 4. “Careers with Most Openings,” US Department of Labor, May 2019, www.careeronestop.org/Toolkit/Careers/careers-most-openings.aspx; “Occupations with the Most Job Growth,” US Bureau of Labor Statistics, May 2019, www.bls.gov/emp/tables/occupations-most-job-growth.htm; “Occupational Outlook Handbook,” US Bureau of Labor Statistics, September 4, 2019, www.bls.gov/ooh/most-new-jobs.htm. 5. Molly Kinder, Laura Stateler, and Julia Du, “The Covid-19 Hazard Continues, but the Hazard Pay Does Not,” Brookings Institution, October 29, 2020, www.brookings.edu/research/the-covid-19-hazard-continues-but -the-hazard-pay-does-not-why-americas-frontline-workers-need-a-raise. 6. Matthew Desmond, “Why Work Doesn’t Work Anymore,” New York Times Magazine, September 11, 2018. 7. Edward Royce, Poverty and Power: The Problem of Structural Inequality (Lanham, MD: Rowman & Littlefield, 2009), documents ten structural obstacles found in racial and ethnic discrimination, residential segregation, housing, education, transportation, sex discrimination, child care, health and health care, retirement insecurity, and legal deprivation. 8. Louis Uchitelle, The Disposable American: Layoffs and Their Consequences (New York: Alfred A. Knopf, 2006), details the emotional, psychological, and material costs of this economic precarity. 9. “Careers with Most Openings”; “Occupations with the Most Job Growth.” These data continue trends identified in the previous several decades. See Charles Blow, “They, Too, Sing America,” New York Times, July 16, 2011, for the fastest-growing occupations for 2011. 10. Josh Bivens and Hunter Blair, “Financing Recovery and Fairness by Going Where the Money Is,” Economic Policy Institute, November 15, 2016, www.epi.org/publication/financing-recovery-and-fairness-by-going-where -the-money-is-progressive-revenue-increases-are-key-to-meeting-nations-fiscal -challenges; Lawrence Mishel, “The United States Leads in Low-Wage Work and the Lowest Wages for Low-Wage Workers,” Economic Policy Institute,

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September 4, 2014, www.epi.org/blog/united-states-leads-wage-work-lowest -wages; “Real Average Hourly Earnings Up 3.2 Percent for the Year Ended October 2020,” TED: The Economics Daily, US Bureau of Labor Statistics, November 17, 2020, www.bls.gov/opub/ted/2020/real-average-hourly -earnings-up-3-point-2-percent-for-the-year-ended-october-2020.htm. 11. Peter Eavis, “The Highest Paid Executives Keep Getting Richer,” New York Times, May 26, 2019. This data is taken from an annual survey by Equilar, an executive compensation consulting firm, of the highest-paid CEOs in the United States. 12. Nelson Schwartz and Michael Corkery, “In Its Heyday, Sears Spread the Wealth. Companies Today Don’t,” New York Times, October 24, 2018. 13. Dean Baker, “If Worker Pay Had Kept Pace with Productivity Gains Since 1968, Today’s Minimum Wage Would Be $24 an Hour,” Common Dreams, January 21, 2020, www.commondreams.org/views /2020/01/21 /if-worker-pay-had-kept-pace-productivity-gains-1968-todays-minimum -wage-would-be-24. 14. Clare O’Connor, “Report: Walmart Workers Cost Taxpayers $6.2 Billion in Public Assistance,” Forbes, April 15, 2014, www.forbes.com/sites /clareoconnor/2014/04/15/report-walmart-workers-10d4-cost-taxpayers-6 -2-billion-in-public-assistance; Hayley Peterson, “More Than 700,000 People Will Soon Lose Food Stamp Benefits Under a New Trump Administration Rule,” Business Insider, December 5, 2019, www.businessinsider.com/walmart -target-impact-from-trump-food-stamp-changes-2019-12. For one example of Walmart-tax denial, see Tim Worstall, “There Is No Walmart Tax,” Forbes, April 18, 2017, www.forbes.com/sites/timworstall/2017/04/18/there-is-no-walmart -tax-every-tax-day-we-get-told-there-is-and-every-year-its-still-untrue. 15. Sylvia Allegretto et al., “Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast-Food Industry,” UC Berkeley Labor Center, October 15, 2013, http://laborcenter.berkeley.edu/pdf/2013/fast_food_poverty _wages.pdf. 16. See Henry Farber et al., “Unions and Inequality over the Twentieth Century: New Evidence from Survey Data,” Working Paper No. 24587, National Bureau of Economic Research, May 2018, www.nber.org/papers/w24587.pdf. 17. “Trade Union Density,” Organisation for Economic Co-operation and Development, June 30, 2020, https://stats.oecd.org/Index.aspx?DataSetCode =TUD. 18. Frank Manzo and Robert Bruno, “After Janus: The Impending Effects on Public Sector Workers from a Decision Against Fair Share,” Illinois Economic Policy Institute, May 9, 2018, https://illinoisepi.files.wordpress.com /2018/05/ilepi-pmcr-after-janus-final.pdf. 19. See Adam Smith, A Theory of Moral Sentiments, ed. D. D. Raphael and A. L. Macfie (Oxford: Clarendon Press, 1976 [1759]), 83–85. 20. Liz Alderman and Steven Greenhouse, “Living Wages, Rarity for U.S. Fast Food Workers, Served Up in Denmark,” New York Times, October 27, 2014. In 2020, Nicholas Kristof estimated that a typical Danish Big Mac cost approximately twenty-seven cents more than in the United States. Kristof, “McDonald’s Workers in Denmark Pity Us,” New York Times, May 10, 2020. Some early-2021 comparisons indicate that a Danish Big Mac actually costs less than it does in the United States. 21. Doruk Cengiz et al., “The Effect of Minimum Wages on the Total Number of Jobs,” Quarterly Journal of Economics 134, no. 3 (August 2019): 1405–1454.

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22. Sylvia Allegretto et al., “The New Wave of Local Minimum Wage Policies: Evidence from Six Cities,” Institute for Research on Labor and Employment, September 6, 2018, https://irle.berkeley .edu/the-new-wave -of-local-minimum-wage-policies-evidence-from -six-cities, found no statistically significant employment effects when comparing the effects of six US cities’ steep raise in the minimum wage to other cities without the steep raise. Paul Wolfson and Dale Belman, “15 Years of Research on US Employment and the Minimum Wage,” Tuck School of Business Working Paper No. 2705499, Social Science Research Network, December 14, 2016, https:// papers.ssrn.com/sol3/papers.cfm?abstract_id=2705499, found “no support for the proposition that the minimum wage has had an important effect on US employment.” See also William Rodgers III and Amanda Novello, “Making the Economic Case for a $15 Minimum Wage,” The Century Foundation, January 28, 2019, https://tcf.org /content/commentary/making-economic -case-15-minimum-wage, which rebuts claims of calamitous fallout from raising the minimum wage, using information from various studies. 23. David Cooper, “Raising the Federal Minimum Wage to $15 by 2024 Would Lift Pay for Nearly 40 Million Workers,” Economic Policy Institute, February 5, 2019, www.epi.org/publication/raising-the-federal-minimum -wage-to-15-by-2024-would-lift-pay-for-nearly-40-million-workers. 24. Drew Desilver, “5 Facts About Minimum Wage,” Pew Research Center, January 4, 2017, www.pewresearch.org/fact-tank /2017/01/04/5-facts -about-the-minimum-wage. The data describes trends in 2015. 25. See Daniel Markovitz, The Meritocracy Trap: How America’s Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite (New York: Penguin Press, 2019). Markovitz documents how the myth of meritocracy contributes to inequality in the United States. See Royce, Poverty and Power, on structural obstacles to achievement and success. 26. Pope John Paul II, On Human Work: Encyclical Laborem Exercens (Washington, DC: Office for Publishing and Promotion Services, United States Catholic Conference, 1981), 233, 227. 27. See, especially, Marjorie Kelly, The Divine Right of Capital: Dethroning the Corporate Aristocracy (San Francisco, CA: Berrett-Koehler, 2001), on this point.

3 The Tax System: Class Struggle Laid Bare

If US policymakers were serious about downward redistribution, the tax system would be a critical vehicle for doing it.1 A close look at the US tax system suggests that policymakers are not serious. Many Americans believe that we overtax the rich, essentially penalizing them for their success. The opposite is true if we take ability to pay into consideration, as we should. Thanks to preferential rates and loopholes, the wealthy pay taxes at rates comparable to most average working people, when considering all federal, state, and local taxes combined. Moreover, some lower- and middle-income people pay taxes at higher rates than some wealthy people do. And some rich people pay little or no taxes at all. This was dramatically illustrated in September 2020 when the New York Times published details from the tax returns of President Donald Trump, showing that he paid only $750 in income taxes for 2016 and 2017, despite reported income in 2017 alone of over $14 million.2 Many Americans also believe that taxes are too high, period. This should be evaluated in context. US taxpayers pay approximately 24 percent of GDP in taxes compared to Organisation for Economic Co-operation and Development (OECD) counterparts among relatively-wealthy countries, who pay an average of approximately 34 percent of GDP in taxes.3 A more 33

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defensible claim about taxes in the United States is that taxes on lower- and middle-income Americans are too high, while taxes on higher-income Americans are too low. Of course, the US system takes in more taxes from the rich than from the poor when measured in absolute dollars. That’s because they have more dollars. Lots more. If the top 10 percent pocket 90 percent of the income in a given year, then of course they will pay more in absolute dollars if taxed at comparable rates. Depending on how you measure it, the overall US federal tax code is only mildly redistributive at best. The amount of downward redistribution in the system has declined precipitously in the last several decades. Any downward redistribution that remains in the system is under sustained attack. And the existing downward redistribution nearly disappears when state and local taxes are added to the mix. Any notion that the overall US tax code significantly redistributes income and wealth from top to bottom is misleading at best, incorrect at worst. The widespread belief that we extract heavy tax burdens from the rich to give to the poor is simply false.

Who Pays? How Much? We measure a tax code’s redistributive impact in terms of its progressivity or regressivity. A progressive tax takes a higher percentage from higher incomes than from lower incomes, while a regressive tax reverses that formula and takes a higher percentage from lower incomes than it does from higher incomes. There are two major rationales for a progressive tax. First, as Thomas Jefferson argued, democracy requires a minimal level of equality. He advocated a “graduated tax” as one means for ensuring this minimal level of equality.4 Second, the tax burden should be tied to ability to pay. Opponents of progressive taxes claim that they penalize the rich. A flat rate is a fair rate, they argue. But this ignores the fact that a flat rate affects different income groups differently. Any tax will stress the financial resiliency of very low-income individuals and families, while anything short of a 100 percent

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tax will scarcely affect the everyday lives of individuals and families at the top. A progressive system would take significantly more from the top income groups for the simple reason that they have most of the money and can afford it without hardship. Taking even small amounts from lower-income individuals and families simply taxes them deeper into poverty, increasing the hardships they experience. The effective tax rate is the ratio of actual taxes paid to taxable income. It is the rate paid after taking advantage of loopholes and write-offs. Looking at only federal effective tax rates (excluding state and local taxes), the wealthy pay at higher rates, in aggregate. The average upper-income earner pays a higher effective overall tax rate than lower-income earners. In tax year 2020, the bottom quintile of taxpayers paid a projected effective tax rate of 3.3 percent, the second fifth paid 8.0 percent, the middle fifth paid 13.2 percent, the next fifth paid 16.9 percent, and the top quintile paid 24.0 percent. The top 1 percent paid a projected effective rate of 29.6 percent, and the richest 0.1 percent paid 30.3 percent.5 The 2019 effective rates for total federal, state, and local taxes show a considerably less progressive picture, in which the bottom fifth paid 20.2 percent, the second fifth paid 22.0 percent, the middle fifth paid 25.2 percent, the fourth quintile paid 27.5 percent, the next 15 percent paid 29.9 percent, the next 4 percent paid 30.6 percent, and the top 1 percent 33.7 percent.6 So far, I have focused on average aggregate data. But many high-income earners pay a lower effective tax rate than lower- and middle-income earners. Some rich people pay no taxes whatsoever, save for sales and property taxes, which amount to pocket change for many of them. The September 2020 exposure of Donald Trump’s tax returns is again illustrative. Warren Buffett, renowned billionaire investor, has proposed a solution to this: no millionaire should pay a smaller share of his or her income in taxes than middle-class families pay. Buffett famously pointed out that he pays a lower rate, approximately 18 percent of his income, than his secretary at approximately a third. Unfortunately, this is not uncommon. The richest Americans take advantage of favorable rates and multiple loopholes. According to data from 2009, around the time Buffett proposed his “rule,” some 22,000 millionaire households paid less

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than 15 percent of their income in income taxes, and some 1,500 paid no federal income taxes whatsoever. At the very top, among the 400 richest Americans in 2009, one-third paid less than 15 percent of their income in income taxes. In 2008, these richest Americans—averaging $271 million in income for the year—paid just 18.1 percent in federal income taxes, a lower rate than many middle-income Americans, as Buffett pointed out. These inequities were the result of Ronald Reagan and George W. Bush administration tax cuts favoring the wealthy, combined with loopholes and write-offs available to them. The disparities have only grown as a result of the Trump 2017 tax cut that favored the wealthy. In a more recent analysis published in 2019, Emmanuel Saez and Gabriel Zucman concluded that Buffett’s experience is generalizable: billionaires often pay lower tax rates than their secretaries.7 Another way to measure the redistributive character of a tax system is to compare different income groups’ taxes paid with their share of total income. Using this measure, any progressivity in the system disappears. As shown in Table 3.1, across all income groups in 2019, the share of taxes paid is almost identical to the share of income. The US tax system is less progressive today than it was a half century ago. Over the last sixty years, tax rates for the wealthy have declined by approximately half while remaining

Table 3.1 Share of Taxes Paid by Income Group as a Percentage of Total Income Income Group Bottom fifth Second fifth Middle fifth Fourth fifth Next 15 percent Next 4 percent Top 1 percent

Share of Total Income

Share of Taxes Paid

2.8 6.6 10.9 18.0 25.5 15.5 20.9

2.0 5.0 9.4 17.0 26.1 16.3 24.1

Source: “Who Pays Taxes in America in 2019?” Institute on Taxation and Economic Policy, April 11, 2019, https://itep.org/who-pays-taxes-in-america-in-2019. Note: Numbers do not add to 100 percent due to rounding.

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roughly constant for other Americans. This means that the people whose incomes have surged most dramatically have at the same time seen their taxes reduced the most, while the people whose incomes have largely stagnated have shouldered a heavier and heavier share of taxes. The United States does less than almost all other OECD countries to counteract inequality through a combination of progressive taxes and social welfare spending, leaving the United States vying for the dubious distinction of being the most unequal of its peer countries. In addition to having a less progressive tax system, the United States takes in less overall taxes, leaving it less to spend—approximately half the OECD average—on social welfare.8

Federal Taxes Understanding how and why the US tax code does not significantly redistribute income and wealth downward requires looking at separate components of the tax code, factoring in state and local taxes, and adding it all up.9

Personal Income Tax on Wages and Salaries This tax, enacted in its modern form in 1913, is progressive overall, but the level of progressivity has steadily diminished since the mid-twentieth century. Many wealthy taxpayers minimize their liability to this tax or avoid it altogether by taking most or all their income from investments that are taxed at lower rates than wages or salaries. Much of the misunderstanding of the distributive impact of the tax code originates in the federal personal income tax on wages and salaries. This tax collects the largest share of federal revenues of all taxes, some 46 percent of overall federal tax revenue in 2018.10 The top marginal tax rate, which few people actually pay after accounting for credits and deductions, has gyrated considerably since 1913, ranging from a high of 94 percent during World War II to a low of 28 percent during the Reagan administration.11 As recently as the 1970s,

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the top rate was 70 percent. In 2020, the seven tax brackets ranged from 10 percent to 37 percent. In short, today’s rates are lower and less progressive. A common misunderstanding about the personal income tax is that a taxpayer who earns extra in a given year risks getting bumped into the next-highest income tax bracket, at which point all of that year’s income will be taxed at the higher rate. So why bother earning the extra income since the US government will confiscate it as taxes? The tax bracket system does not work that way. Only the increment of additional income in the higher tax bracket, not the taxpayer’s entire income, will be taxed at the higher rate. A taxpayer ’s liability is calculated by levying a particular rate on each increment of income, then adding it up. Another related misunderstanding, fed by flat tax proponents, is that the brackets enormously complicate the task of calculating tax liabilities, adding hours of work to the typical taxpayer ’s annual tax calculation. But the brackets themselves have never significantly complicated tax preparation. Prior to computer-based software programs for calculating taxes, the typical taxpayer calculated adjusted gross income, then simply referred to handy tax tables published by the IRS. Using today’s software, as most taxpayers do, even this step is unnecessary since the computer does it automatically. Calculating adjusted gross income can be a laborious, time-consuming process for taxpayers who file the long form, requiring multiple adjustments to income. In the form of credits and loopholes, more adjustments are available to higherincome than lower-income taxpayers. So if the US federal tax code is unnecessarily complicated, the complexity tends to favor higher-income taxpayers. The Earned Income Tax Credit (EITC), available only to low-income wage earners, increases the progressivity of the personal income tax, at least marginally. This feature of the tax code provides tax credits that reduce or even eliminate federal personal income tax liability for low-income wage earners, potentially resulting in negative personal income taxes. In other words, low-income filers may get more in refunds than they paid in personal income taxes. The caveat is that this is only available to taxpayers who work for a wage or salary. It is not available to individuals without jobs.

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In recent decades, most Republican politicians have sought to decrease or eliminate the progressivity of the personal income tax by lowering the top rates while decreasing the number of brackets, and Democrats generally have wanted to move in the opposite direction. In recent decades, most Republican candidates for US president have backed a flat tax proposal, which would entirely eliminate the progressivity of the personal income tax by levying a single flat rate on all incomes. Technically, a flat rate personal income tax is neither progressive nor regressive. As noted above, however, any flat tax is likely regressive in its impact in that it falls more heavily on the shoulders of lower- and middle-income taxpayers. Additionally, most flat tax proponents underestimate how high the flat tax rate would have to be in order to be revenue neutral. Ted Cruz, Texas senator and Republican presidential candidate in the 2016 election, proposed a 10 percent flat tax coupled with a value-added tax to replace the current graduated personal income tax. Estimates of the resulting deficit ranged from approximately $1 trillion to $14 trillion over the next decade. During the presidential campaign of 1996, multimillionaire businessman Steve Forbes and Congressman Dick Armey, Republican from Texas, proposed a flat-rate income tax of 17 percent while eliminating taxes on investment income, corporate income taxes, and estate taxes. One need not be cynical, only observant, to note that this would dramatically reduce, and potentially eliminate, any federal tax liability faced by Forbes, who, like many wealthy individuals, inherited his wealth and derived most of his income from investments. Analysts across the political spectrum also noted that the 17 percent would more realistically have to be at least 24 percent to achieve revenue neutrality. Barely hidden in Republican flat tax proposals is a larger aspiration of “starving the beast” of revenue, which would force the government to downsize. The actual result of their tax cuts over the last sixty years has been surging deficits and a national debt by the end of 2020 of over $28 trillion.

Personal Income Tax on Investments Since this tax is levied on investment income, it applies only to Americans who have investments and derive income from them.

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Roughly half of Americans own zero stock. Stock ownership is concentrated in the top 20 percent and, even more so, in the top 10 percent. In short, this tax applies mostly to affluent and wealthy Americans, making it progressive. However, the rates are considerably lower than the personal income tax on wages and salaries, approximately by half overall, motivating many of the wealthiest Americans to shift their income from wages and salaries into investments in order to reduce their tax liability. Additionally, wealthy taxpayers can avoid or defer paying this tax simply by holding onto an asset rather than selling it. Since 1922, with the exception of 1988 to 1990, when capital gains were taxed at the same rate as income from wages and salaries, capital gains have been taxed at rates as low as one-fifth of tax rates on wages and salaries. In 2020 the capital gains tax ranged from 0 to 20 percent on long-term capital investments (higher rates apply on short-term investments of less than a year), depending on your overall income, and collected approximately 4 percent of overall federal revenues from taxes.12 Taxing capital gains at a lower rate than ordinary income encourages investors to convert income from wages and salaries to capital gains.13 Apple CEO Steve Jobs, for example, in 2000 took his compensation in the form of a $1 wage, stock options of $240 million, and a $40 million Lear jet. By taking his compensation in this form, he considerably reduced his tax liability by avoiding the higher rates on income from wages and salaries. In theory, lower tax rates on capital gains encourage investment in productive capacity within the United States, leading both to a trickle-down effect as new jobs are created and also to higher overall tax revenue as investments drive economic growth and an expanding tax base. As noted earlier, evidence does not support either claim. The United States experienced higher economic growth during the Bill Clinton years (1992– 2000), despite higher taxes than during the Bush II years, which saw reductions in taxes on personal income derived both from investments and from wages and salaries. Moreover, and predictably, the higher tax rates during the Clinton years resulted in higher tax revenues, leading to the only federal budget surpluses of the last several generations. Of course, some middle-income and even lower-income individuals earn at least a small portion of their income from investments. In 2008, presidential candidate John McCain said

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it would be terrible to allow Bush’s tax cuts on capital gains and dividends to expire, since 100 million people have investments. But most low- and middle-income Americans invest, if they are able to do so at all, in home mortgages and retirement accounts. Taxes on the latter accounts are deferred until retirement, at which time they are taxed as ordinary income subject to the higher rates imposed on wages and salaries. In reality, the wealthy own most stocks and bonds and other investment instruments, so their income from investments far exceeds that of average Americans in both relative and absolute terms. Thus, the benefits of these lower rates on investment income flow disproportionately to the wealthy.

Payroll Tax The regressive payroll tax accounts for over a third (36 percent in 2019) of all federal revenue. One study found that a majority of adult taxpayers in the United States pay more in payroll taxes than they do in income taxes.14 Congress created the tax in 1937 primarily to fund Social Security and added Medicare in 1965. The payroll tax rate is 6.2 percent for Social Security and 1.45 percent for Medicare, for a combined total of 7.65 percent. While most working Americans pay the full 7.65 percent in payroll taxes for every single dollar they earn, wealthy Americans pay it on only a portion of their income derived from wages and salaries. In 2020, the portion of the payroll tax dedicated to Social Security was capped at an income threshold of $137,700 (rising to $142,800 in 2021), an amount that is adjusted upward every year. This means that a person who earns $1 million in wages and salary in 2020 will pay the full payroll tax of 7.65 percent on only the first $137,700 of that income, and only the Medicare portion of 1.45 percent on the remainder of $862,300. The effective payroll tax rate thus decreases steadily on incomes over the cap. For a person earning $1 million, the effective payroll tax rate would be 2.3 percent, whereas the average American pays the full 7.65 percent effective rate. A $10 million earner would pay an effective payroll tax rate of only 1.5 percent. This tax applies only to wages and salaries. The wealthy who choose to live off their investments do not pay this tax at all.

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Employers match the tax paid by employees, so the combined overall tax rate is 15.3 percent. Most economists agree that employers fund their share at least partly by reducing their employees’ compensation. This means that typical wage earners actually pay an effective rate higher than 7.65 percent.

Corporate Income Tax This tax is progressive in that it is levied on corporations, most of which are owned by higher-income people. Conversely, most corporations likely pass at least some of the cost of the tax along to consumers in the form of higher prices and to employees in the form of lower wages. Everyone pays this tax, directly or indirectly. Republicans have long made this tax a prime target for reduction or elimination, arguing that the US corporate income tax is considerably higher than in other nations, resulting in a competitive disadvantage for US corporations. They are correct that, until recently, the top statutory rate was higher, at 35 percent, than in most other countries. However, that rate applied to a narrower tax base with more generous loopholes, resulting in an overall effective US corporate tax rate of approximately half that 35 percent, with estimates ranging from 12.5 percent to 19.4 percent in 2016, the year before Trump and his Republican allies enacted steep cuts.15 The effective corporate tax rate has declined steadily since its high of nearly 50 percent in 1950, when corporate taxes represented a much higher share of overall federal tax revenues at approximately one-third. In 2019 the federal government collected approximately 7 percent of its total tax revenues from the corporate income tax. Since most corporate owners are affluent, the reductions in the corporate income tax mark an ongoing shift toward a less progressive tax system. Measured as a share of GDP, US corporate taxes, at 2.0 percent, were actually lower than the OECD average of 2.9 percent before the Trump corporate tax cuts.16 Nevertheless, a Republican-controlled Congress and President Trump reduced corporate taxes in the euphemistically named Tax Cuts and Jobs Act, signed into law in December 2017 and taking effect in 2018. This legislation reduced the top rate from 35 to 21 per-

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cent. Unsurprisingly, corporate profits surged, along with the wealth of corporate owners, and the national debt rose steeply. The rationale for those corporate tax cuts emphasized stimulus to the economy and higher wages for workers. Since the US economy was already climbing steadily after the Great Recession, the tax cut added little extra juice. And as noted earlier, most US corporations used their tax handouts primarily to compensate shareholders via stock buybacks (driving up the value of stocks) and dividends rather than increasing workers’ wages significantly. Opponents of the corporate income tax also argue that it represents an unfair form of double taxation on corporate owners. Since dividends are taxed, so the argument goes, it is unfair to apply an additional tax to corporate profit. But this fails to note that most income is taxed multiple times. The average US worker pays multiple taxes on every dollar earned: payroll taxes and personal income tax at the federal level, personal income tax at state and local levels in jurisdictions where those taxes apply, additional sales tax when purchasing a taxable item, and property taxes. Many of the largest US corporations pay zero corporate income taxes, thanks to the many loopholes available to them. Before the December 2017 Tax Cuts and Jobs Act took effect, these corporations were reaping the benefits of a tax code that provided them with generous loopholes. In 2017, illustrations included the following:17 • Amazon reported $5.4 billion in US profits, and yet it received a rebate of $137 million from the federal government. • GM paid no taxes for the year on $4.32 billion in corporate income, after having closed its plants in Lordstown, Ohio, and Hamtramck, Michigan, laying off thousands of workers. • Molson Coors earned $1.5 billion in profits in the United States but paid nothing in federal corporate income taxes. • Two giant financial firms, AFLAC and Prudential Financial, together reported over $3.7 billion in US profits without paying a cent of federal corporate income tax.

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• Cable television giant Dish Network earned $1.6 billion in US profits while paying no federal corporate income tax. • California utility PG&E reported a $2.1 billion profit and received a rebate of $10 million. These and other Fortune 500 companies have paid little or no taxes over the past decade, in some cases despite record profits. Rather than putting a stop to this preferential treatment for corporations and their owners, the Trump tax cut amplified it. One of the most generous corporate tax loopholes is accelerated depreciation, a tax break that allows companies to deduct the cost of investments at a rate that exceeds the actual rate of depreciation. A second allows corporations to write off a portion of the value of executive stock options. In other words, corporations can deduct part of CEO and other senior management compensation when paid as stock options. 18 This naturally increases the incentive both to inflate salaries at the top and to pay CEOs and senior management in stock options rather than in wages and salaries in order to lower their tax liability. Corporations enjoy other loopholes that allow them to reduce or eliminate their local and state taxes. One popular loophole among big-box stores and corporate retailers is undervaluing the buildings they operate. Walmart, Kohls, Home Depot, Target, Menards, Walgreens, and other large corporations claim that, no matter how much profit they generate, and no matter how valuable the buildings are to the operator, the buildings have little value to anyone else. So they appeal property tax appraisals they don’t like, understating the value. As a result, they pay less in property taxes. Towns and cities that host these corporate retailers are deprived of needed tax revenue and must either find it elsewhere or do without. The state of Michigan estimated the cost to its towns and cities at $100 million between 2013 and 2017. The Texas comptroller estimated the loss to local governments at $2.6 billion a year.19

Estate Tax The estate tax is genuinely progressive in that it applies only to the very richest Americans. But policymakers have ensured

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that it applies only to the very richest Americans, stripping it of any broadly redistributive effect. Perhaps because it redistributes downward, the estate tax has long been under attack by Republicans and other conservatives, who have dubbed it the “death tax” as part of a public relations campaign to discredit it. Many Americans have been misled to believe that the tax applies to all income groups when in fact it only affects the very richest Americans. Thanks to this negative public relations campaign and Republican enthusiasm for abolishing it, the estate tax was virtually eliminated by 2013. As recently as 2001, the estate tax targeted estates valued at $650,000 or higher for individuals, meaning it applied only to the top 2 percent of wealthiest Americans. Since then, after repeated attacks and cuts, the tax applied in 2020 only to estates valued at $11.58 million or higher for individuals and double that for couples. This means the tax applies only to the richest 0.2 percent of Americans and collects less than 1.0 percent of all federal tax revenues. The arguments against the estate tax have relied on duplicity and dubious moral claims. As noted, the public relations campaign against the estate tax failed to inform the public that this tax has never affected more than the top 2 percent of wealthiest Americans. Many of the richest Americans did not earn their wealth. It was simply given to them. According to Forbes Magazine, over a third of the wealthiest Americans acquired their fortunes through inheritance.20 Also, many so-called self-made rich people acquired their fortunes by paying low wages, and all of them built their fortunes with direct and indirect social support in forms ranging from public education to publicly provided infrastructure to government-subsidized re-search and development. If we are serious about equal opportunity, we need an effective inheritance tax. Otherwise, those fortunate Americans born into privilege will enjoy significantly more opportunities than ordinary Americans. Some wealthy individuals have joined the Responsible Wealth campaign in support of maintaining and even increasing the inheritance tax in order to maintain greater equality and opportunity in America.21

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Sales Tax The federal sales tax is levied as a flat rate on cigarettes, alcohol, gasoline, firearms, telephone services, gambling, hunting and fishing equipment, and a relatively short list of other purchases. In 2019, the federal government derived less than 1 percent of its tax revenues from the sales tax. At the state and local levels, this tax covers a much wider array of goods and services, including, in some states, food and clothing. As a flat rate tax, applied as a straight percentage at the point of purchase, the sales tax is regressive, since lowerincome Americans typically pay a higher effective rate than higher-income Americans. Take the gasoline tax as an example. This tax is already included in the price that motorists pay at the pump. Unchanged since 1993, the federal gas tax was 18.4 cents per gallon in 2020. Adding state gas taxes raised the national average to 49.5 cents in taxes per gallon. Compare that to the average European Union gas tax of $2.48 per gallon in 2019. In the United States, all motorists pay the average flat rate of 49.5 cents per gallon. The effective rate paid by individual drivers depends on the total amount of gasoline taxes paid in a given year, divided by income for that year. Assuming that lowerand middle-income Americans purchase approximately the same amount of gasoline as do upper-income Americans, the effective tax rate on gasoline increases as income decreases. Lower-income Americans bear a heavier load. This same formula is true of most products and services subject to a sales tax. The exceptions would be products and services purchased by only upper-income families. Lowerand middle-income families are unlikely, for example, to pay any sales taxes for the purchase of expensive luxuries. All states except Alaska, Delaware, Montana, New Hampshire, and Oregon collect state sales taxes in addition to local and federal sales taxes. Some have a single rate throughout the state, though most permit local variations. The local and state rates combined range from a low of zero to a high of approximately 10 percent. Some would-be reformers want to expand the national sales tax. They back a flat rate consumption tax on all, or most, purchases. Some advocates of this approach want it to

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replace all other existing taxes. Doing so would require a consumption tax rate estimated as high as 60 percent on all purchases. Replacing only the income tax portion would require a consumption tax rate estimated at 22 to 34 percent, depending on what mitigating steps were taken to redress this tax’s regressivity.22

State and Local Taxes Almost every state and local tax system is regressive, some profoundly so. Reasons include the absence of a graduated personal income tax (in states and cities that impose an income tax), as well as a heavy reliance on regressive sales and property taxes to fund services which range from public education to infrastructure construction, maintenance, and repair. State and local sales taxes function the same way as the federal sales tax, and the nominal rates vary considerably by locale. Property taxes are typically levied as a flat rate percentage on homes and other real estate holdings. The owner of a mansion will pay more in absolute dollars than the owner of a modest bungalow, but the bungalow owner will likely feel the weight of that tax more than the mansion owner, for the same reasons as outlined previously for flat taxes. Since property tax applies only to property owners, who generally are more affluent than renters, it might appear that this tax is progressive. However, most landlords include the cost of the property tax in the rental fee. In other words, renters pay the tax indirectly. State and local tax regressivity has increased as effective tax rates on middle- and lower-income families have risen— and while those on wealthy Americans have fallen. In the ten most regressive states (in order, in 2019, Washington, Texas, Florida, South Dakota, Nevada, Tennessee, Pennsylvania, Illinois, Oklahoma, and Wyoming), the bottom 20 percent pay up to six times as much of their income in taxes as the top 20 percent. This actually understates the disparity, since it is based on tax rates calculated before the federal deductions enjoyed

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by upper-income earners. The least regressive states (California, Delaware, Minnesota, Montana, Oregon, and Vermont) and the District of Columbia reverse the formula by relying less on regressive sales and property taxes and more on graduated personal income taxes.23 According to the Institute on Taxation and Economic Policy (ITEP), the overall state and local effective tax rate for the bottom quintile is considerably higher than for the top 1 percent: 11.4 versus 7.4 percent.24 Their analysis does not include unrealized capital gains. If you include that in the analysis, it looks even worse. On average, the bottom quintile of taxpayers pays state and local taxes at a rate roughly 50 percent higher than the richest 1 percent. For all but six states and the District of Columbia, state and local tax systems actually increase inequality by assessing higher effective tax rates on lower incomes than on higher incomes. Perversely, the states most often praised for their low taxes are often the states that impose the highest burdens on lowincome individuals and families. In translation, praise for “low taxes” thus means “low taxes for the affluent.” These states are also often praised for their “friendly business climate,” meaning that policymakers are doing a good job of protecting corporate profit, even if it means deriving tax revenue from regressive sources.

Putting It All Together Putting it all together, the US tax system overall is barely progressive. Top income groups pay slightly more (1–3 percent) in taxes than their share of total income, while the bottom income groups pay slightly less (1–2 percent) in taxes than their share of total income. While the bottom 20 percent of Americans earn 2.8 percent of total income and pay 2.0 percent of total taxes, the top 1 percent takes in 21 percent of total income and pays 24 percent of total taxes. The top 20 percent account for a whopping 61.9 percent of total income and pay slightly more than that of total taxes.

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Looking at overall effective tax rates presents a similar picture of slight progressivity, with caveats. While the poorest fifth of the American population pays roughly 20 percent of its income in taxes, the middle fifth pays roughly a quarter, and the top fifth pays roughly 30 percent. At the very top, the richest 1 percent of Americans pay an effective overall tax rate of roughly a third.25 We should remind ourselves at this point of the felt impact of taxes on various individuals and families. The poorest fifth of Americans struggle to make ends meet. Often they struggle to survive in the barest of terms. Asking them to pay a full fifth of their income in taxes compounds the challenges to survival they face in their daily lives and undermines any remote possibility of getting ahead. By contrast, top income earners’ 30 percent effective tax rate has relatively little impact on their daily lives. This is especially true of the top 1 percent, whose gains in income have reached astonishing levels, while the willingness to tax them proportionately has declined. Let us also remind ourselves that, while aggregate data shows that each income group’s share of taxes is nearly equal to its share of total income, many wealthy individuals manipulate the system to reduce or even eliminate their tax liability. As noted earlier, many wealthy Americans pay considerably lower rates than average Americans, and some pay no personal income tax or payroll tax (the two largest sources of federal tax revenue) on wages and salaries because they do not earn a wage or salary. They live off their investments, which are taxed at lower, preferential rates. Unlike Warren Buffett, many wealthy beneficiaries of the current tax system have been less than enthusiastic about revealing their preferential tax treatment or doing anything about it. Mitt Romney, Republican nominee for the presidency in 2012, found it embarrassing to release his tax returns, which showed that he had been paying an effective tax rate of only 14 percent. Until the New York Times preemptively released them in 2020, President Donald Trump steadfastly refused to release his tax returns, most likely because they revealed that he paid little if any taxes and was less rich than he claimed to be.

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Making Taxes Progressive If we want a tax system that truly redistributes downward, it must be made more progressive. Using the existing tax system already in place, reform options include the following: • Raise the top rates of the federal personal income tax while lowering or eliminating the bottom rates. • Institute a state-level progressive personal income tax in states that do not already have one. • Tax capital gains at the same rate as wages and salaries. • Remove the cap on the federal payroll tax. • Raise corporate tax rates and reduce or eliminate loopholes. • Extend the EITC upward to include middle-income workers and downward to extend benefits to workers who earn too little to benefit from tax credits. • Decrease or eliminate sales taxes at federal, state, and local levels on essential products and services. • Make property taxes progressive by assessing rates that differentiate by income. • Increase estate taxes to previous levels or higher, affecting the top 2 percent of households. • Close loopholes that disproportionately favor the wealthy. Most Americans support increased taxes on the wealthy. In a Fox News poll in January 2019, three-fourths of voters favored higher taxes on the wealthy. Even a majority of Republican voters favored higher taxes on Americans who earned $10 million or more.26 Some proponents of reform step outside the existing tax structure. During the 2020 election cycle, Democratic presidential candidates Elizabeth Warren and Bernie Sanders included a wealth tax in their policy proposals. Their opponents attempted to discredit the proposal by labeling it socialist,27 but it fits comfortably within the current US political economy. Consider a hypothetical example of a person with $15 million in assets. With a wealth tax of 1.0 percent on wealth over $10 million, the tax would be 1.0 percent of $5.0

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million, or $50,000. But remember that the $5.0 million is not stuffed under a mattress. It is likely invested in some form that earns a return on investment or appreciates in value. If it earns a modest 5.0 percent return, then the wealth tax simply subtracts 1.0 percent (the wealth tax rate), leaving a still healthy 4.0 percent return on investment. In short, a wealth tax is not intended to confiscate entire fortunes, as some misleading accounts would have it. It only insists that those concentrations of wealth contribute to the public treasury. The potential revenue from a wealth tax is impressive. At one time, Donald Trump recognized this. In 1999, he proposed a onetime wealth tax of 14.25 percent on wealth over $10 million. He calculated that this would net $5.7 trillion in new tax revenue and would eliminate the national debt.28 Total US household wealth at the end of 2018 was estimated at approximately $104 trillion. The top 1 percent of Americans held approximately one-third of that, or roughly $35 trillion. A 1.0 percent wealth tax assessed only on the top 1 percent would net $350 billion for the tax year 2018. Make it the top 10 percent of Americans, who own approximately three-fourths (or roughly $78 trillion), assess the 1.0 percent wealth tax, and you net $780 billion for that tax year. Double the rate to 2.0 percent and say good-bye to the federal budget deficit and hello to needed investment in infrastructure, education, elder care, and child care. This is obviously an overly simplified calculation, but it gives a sense of how a wealth tax works and the magnitude of revenue generated from it. Senator Warren’s plan included a 2 percent wealth tax on assets above $50 million and 3 percent on assets above $1 billion. She estimated it would raise $2.75 trillion over a decade. Senator Sanders also proposed a graduated rate, ranging from 1 to 8 percent on fortunes starting at $32 million. His proposal would net an estimated $4.35 trillion in tax revenue over the next decade.29 Most Americans already pay a wealth tax in the form of property taxes, whether directly as homeowners or indirectly as renters. The property tax is often levied at rates well above those proposed by Warren and Sanders. Advocates for an increasingly regressive tax framework in the United States argue that it is necessary to keep taxes on the

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rich low in order to encourage them to invest within the country. According to this argument, if we levy taxes that are too high on the rich, they will take their money and run. Any attempts to increase taxes on the rich, we are told, will simply drive them into frenzies of asocial tax-avoidance strategies. Extreme versions of this argument anticipate a wave of rich people renouncing their US citizenship and escaping to tax havens like Switzerland and Singapore.30 There are several ethically and practically justifiable responses to this. First, appeal to Americans’ sense of fairness. Rich Americans make their money in part by taking advantage of favorable laws, rules, and norms, including generous tax rates on the rich, low wages, a union movement in a death spiral, the normalization of selfishness and greed, and disregard for the material well-being of millions living on the margins of American life. Most Americans know this is unfair. Second, appeal to the patriotism of wealthy investors and their apologists. Much of the rationale for regressive taxation comes from the same people who espouse aggressive patriotic values, often at high decibels. Ask them which they love more, their country or an even higher return on investment? If they are the patriots they claim to be, then prove it. Pay a fair share in taxes.31 Third, if some rich people want to take their money and run, make them pay on their way out the door. Exact a heavy exit price in the form of a steep tax on capital flight. It need not be fully confiscatory, just enough to make them think twice about pulling out. In any case, recognize the bankrupt ethical framework that normalizes asocial hoarding built on the backs of lower- and middle-income Americans. Stop pretending that it is normal and acceptable. Taxes should not create challenges for individuals and families in providing for their basic living necessities of food, clothing, shelter, and health care. Even moderate tax rates on lower incomes create hardships. And steep rates on upper incomes are fair when the ability to pay is factored into the discussion, as it should be. The tax system should redistribute downward. We should maintain and strengthen a progressive system. Our failure to

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do so has more to do with power politics and dubious ideological commitments than with any defensible ethical or moral principles. Defenders of the current system draw selectively and misleadingly on historical figures such as Adam Smith and Thomas Jefferson to defend a form of freedom unbounded by notions of justice, an indifference to substantive equality, and a commitment to a political economy at odds with central democratic principles. The version of Adam Smith favored by antitaxers paid uncritical homage to so-called free markets and an invisible hand that distributes plenty to all who seek it. The real Adam Smith recognized that the extreme wealth of one person presumes the poverty of many more; that self-interest must be bounded by remorse, sympathy, and compassion for others; and that justice requires government intervention to address the consequences of inequality. The real Adam Smith also recognized that basic fairness dictates that taxation should be based on ability to pay. Smith considered it a “maxim” of taxation that people should be taxed “as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”32 As Smith recognized, government makes enterprise possible, and individuals should contribute to its functioning according to the level at which they benefit from enterprise. In the portrayal of Thomas Jefferson in some accounts, equality drops from view, pushed aside by his greater love of liberty and suspicion of government. The real Thomas Jefferson valued liberty but also democracy and equality. He believed that democracy is impossible without some semblance of substantive equality. Otherwise, democracy will begin to resemble an oligarchy, a plutocracy of rule by a wealthy elite. And one way to ensure greater equality is through a progressive system of taxation. One means of “lessening the inequality of property,” Jefferson argued, is to “exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”33 Finally, we should recognize that the religious and humanist values claimed by most Americans unequivocally mandate care for the most vulnerable populations.34 A progressive tax system makes this both more possible and more likely.

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Notes 1. According to the editors of one volume on microeconomic policy in the United States, “Taxation is . . . perhaps the clearest manifestation of class struggle one can find.” See introduction to “Chapter 9: Taxation,” in Real World Micro, ed. Rob Larson et al., 27th ed. (Boston: Economic Affairs Bureau, 2020), p. 283. 2. Editors, “President’s Taxes Chart Chronic Losses, Audit Battle, and Income Tax Avoidance,” New York Times, September 28, 2020. 3. See “Tax Revenue,” OECD, 2019, https://data.oecd.org/tax/tax-revenue .htm. 4. Thomas Jefferson, “Letter to James Madison [1785],” in The Life and Selected Writings of Thomas Jefferson, ed. Adrienne Koch and William Peden (New York: Random House, 1944), 362. Abraham Lincoln also favored a progressive income tax. His first federal income tax included a graduated levy with a $600 personal allowance that exempted most working families and rates up to 10 percent on incomes over $10,000. It was repealed in 1871. 5. “Are Federal Taxes Progressive?” Tax Policy Center, updated May 2020, www.taxpolicycenter.org/briefing-book/are-federal-taxes-progressive. 6. “Who Pays Taxes in America in 2019?” Institute on Taxation and Economic Policy, April 11, 2019, https://itep.org/who-pays-taxes-in-america -in-2019. 7. For the 2008 and 2009 data, see National Economic Council, “The Buffett Rule: A Basic Principle of Tax Fairness,” Obama White House, April 2012, https://obamawhitehouse.archives.gov/sites/default/files/Buffett_Rule_Repo rt_Final.pdf; Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay (New York: W. W. Norton, 2019). 8. Chye-Ching Huang and Nathaniel Frentz, “What Do OECD Data Really Show About US Taxes and Reducing Inequality?” Center on Budget and Policy Priorities, May 13, 2014, www.cbpp.org/research/what-do-oecd -data-really-show-about-us-taxes-and-reducing-inequality; Michael Greenstone and Adam Looney, “Just How Progressive Is the US Tax Code?” Brookings Institution, April 13, 2012, www.brookings.edu/blog/up-front /2012/04/13/just-how-progressive-is-the-u-s-tax-code. 9. For general overviews of US tax policy, see Michael Thom, Tax Politics and Policy (New York: Routledge, 2017); and C. Eugene Steuerle, Contemporary US Tax Policy, 2nd ed. (Washington, DC: Urban Institute Press, 2008). For critical analyses of US tax policy that highlight its nonprogressive character, see Bret Bogenschneider, How America Was Tricked on Tax Policy (New York: Anthem Press, 2020); and chapters on US tax policy in multiple editions of the Dollars & Sense Collective’s Real World Micro (Boston: Economic Affairs Bureau). 10. Percentages for each tax are taken from Kimberly Amadeo, “US Federal Government Tax Revenue: Who Really Pays Uncle Sam’s Bills?” Updated July 01, 2020, www.thebalance.com/current-u-s-federal-government-tax-revenue -3305762. 11. At the height of World War II, US policymakers asked rich Americans to shoulder a heavy burden to finance the war. Since then, policymakers enthralled by supply side economics have gone the other direction, cutting taxes on the rich while increasing spending on the military. The resulting budget deficits should surprise no one.

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12. Cam Merritt, “What Percent of IRS Revenue Comes from the Capital Gains Tax?” PocketSense, November 21, 2018, https://pocketsense.com/percent -irs-revenue-comes-capital-gains-tax-1105.html. 13. Robert Kuttner, “The Trickle-Up Effect of a Capital-Gains Tax Cut,” Business Week, August 14, 1989, 32, pointed this out thirty years ago, and it still applies. 14. Christopher Faricy, Welfare for the Wealthy: Parties, Social Spending, and Inequality in the US (New York: Cambridge University Press, 2015), 205. An earlier study came to the same conclusion. See David Cay Johnston, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich— and Cheat Everybody Else (New York: Penguin, 2003), 121. 15. Hunter Blair, “Corporations Pay Between 13 and 19 Percent in Federal Taxes,” Economic Policy Institute, August 10, 2017, www.epi .org/publication /corporations-pay-between-13-and-19-percent-in-federal-taxes-far-less-than -the-35-percent-statutory-tax-rate. 16. “Tax on Corporate Profits,” OECD, 2019, https://data.oecd.org/tax /tax-on-corporate-profits.htm. 17. Stephanie Saul and Patricia Cohen, “$0 Corporate Tax Bills Kindle Voter Resentment,” New York Times, April 30, 2019; Michael Rainey, “Corporate Tax Revenues Are Falling Fast,” New York Times, July 25, 2018. 18. The deductible portion is the difference between the value of the stock as reported on corporate books for financial accounting purposes and the value of the stock as reported to the IRS. The former is generally inflated to show higher profits, and the latter is deflated to minimize tax liability. See Elise Bean, Matthew Gardner, and Steve Wamhoff, “How Congress Can Stop Corporations from Using Stock Options to Dodge Taxes,” Institution on Taxation and Economic Policy, December 10, 2019, https://itep.org/how-congress -can-stop-corporations-from-using-stock-options-to-dodge-taxes. 19. See Patricia Cohen, “As Big Retailers Seek to Cut Their Tax Bills, Towns Bear the Brunt,” New York Times, January 6, 2019. 20. Rainer Zitelmann, “Why Inheritance Is Mostly Overrated as a Reason for Wealth,” Forbes, June 24, 2019, www.forbes.com/sites/rainerzitelmann /2019/06/24/amazing-facts-that-prove-inheritance-is-mostly-overrated-as -a-reason-for-wealth. As Zitelmann notes, historically that figure has been even higher. As recently as the early twenty-first century, over 40 percent of the Forbes 400 richest Americans inherited their wealth. 21. See, for example, William Gates and Chuck Collins, Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes (Boston: Beacon Press, 2002). 22. “Who Bears the Burden of a National Retail Sales Tax?” Tax Policy Center, May 2020, www.taxpolicycenter.org/briefing-book/who-bears-burden -national-retail-sales-tax. 23. For ongoing reports on state and local tax systems, see the multiple editions of Who Pays? published by the Institute on Taxation and Economic Policy (www.itepnet.org). For a comprehensive analysis of federal, state, and local taxes that reaches similar conclusions as this one—that regressive state and local tax systems offset whatever progressivity can be found in the federal tax system—see “The US Tax and Spending Explorer,” Economic Policy Institute, July 15, 2020, www.epi.org/explorer. 24. Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, 6th ed. (Washington, DC: Institute on Taxation and Economic Policy, 2018), https://itep.sfo2.digitaloceanspaces.com/whopays-ITEP-2018.pdf.

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25. “Who Pays Taxes in America in 2019?” 26. Patricia Cohen and Maggie Astor, “Soak! The! Rich!” New York Times, February 10, 2019. 27. Wall Street Journal editors additionally labeled it immoral, writing, “The best argument against a wealth tax is moral. It is a confiscatory tax on the assets from work, thrift and investment that have already been taxed at least once.” Whatever the merits of this “moral” argument, they should be weighed against the (im)morality of deprivation caused by deepening radical inequality. See Editors, “Where Wealth Taxes Failed,” Wall Street Journal, November 5, 2019. 28. See Phil Hirschkorn, “Trump Proposes Massive One-Time Tax on the Rich,” CNN.com, November 9, 1999, www.cnn.com/ALLPOLITICS/stories /1999/11/09/trump.rich/index.html. 29. Cohen and Astor, “Soak! The! Rich!”; Tara Golshan, “Bernie Sanders’s Wealth Tax Proposal, Explained,” VOX, September 24, 2019. For a discussion of some of the pros and cons of a wealth tax, see Andrew Chatzky, “Inequality and Tax Rates: A Global Comparison,” Council on Foreign Relations, March 12, 2019, www.cfr.org/backgrounder/inequality-and-tax-rates-global -comparison; and John Miller, “The Wealth Tax Proposals,” in Real World Macro, ed. Elizabeth Henderson et al., 37th ed. (Boston: Economic Affairs Bureau, 2020), 194–202. 30. See Paul Sullivan, “Fed Up with Being American? Plan Carefully,” New York Times, December 7, 2019, for a recent story about a handful of rich Americans renouncing their citizenship in anticipation of a tax bill they deemed unacceptable. See Cristobal Young, The Myth of Millionaire Tax Flight (Stanford, CA: Stanford University Press, 2017); and John Miller, “State Taxes on Millionaires Do Work,” in Real World Micro, ed. Rob Larson et al., 27th ed. (Boston: Economic Affairs Bureau, 2020), 290–293, for counter arguments, with evidence. Warren Buffett predicts that few rich Americans would flee higher taxes. See Emmie Martin, “Warren Buffett and Bill Gates Agree That the Rich Should Pay Higher Taxes,” CNBC Make It, February 26, 2019, www.cnbc.com/2019/02/25/warren-buffett-and-bill-gates-the-rich -should-pay-higher-taxes.html. 31. Members of the Responsible Wealth movement are doing precisely this. See www.responsiblewealth.org. 32. See “Part II: Of Taxes,” in Adam Smith, “Of the Sources of the General or Public Revenue of the Society, Book V, Chapter II,” in An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Library of Economics and Liberty, www.econlib.org/library/Smith/smWN.html?chapter_num=36#book -reader. In addition to his Wealth of Nations (1776), see his Theory of Moral Sentiments (1759). 33. Jefferson, “Letter to James Madison [1785],” 362. Jefferson couched much of his commitment to democracy in the language of republicanism, a near cousin of democracy. 34. For one account, based on an analysis of the Alabama tax code, see law professor Susan Hamill’s “An Evaluation of Federal Tax Policy Based on Judeo-Christian Ethics,” Virginia Tax Review 25, no. 3 (winter 2006): 671–764.

4 Social Welfare: We’re All on the Dole

More myths infect social welfare in the United States than perhaps any other area of government policy. Welfare recipients are lazy, irresponsible, and undeserving. They make bad choices. They live for the moment rather than build for the future. They breed to maximize their monthly dole from Uncle Sam. They victimize taxpayers who are forced to fund their cheating. Collectively, they shift resources downward from hardworking producers to undeserving takers. These myths surrounding welfare are particularly virulent and more intensely damning, vindictive, and punitive because they target poor people and people of color. They are also very misleading in perpetuating the misconception that all welfare spending flows to low-income Americans. Related myths blame Democrats and government in general, as they tax hardworking Americans in order to carelessly expand welfare to support their lazy constituents. Republicans help Americans keep their hard-earned money by cutting welfare spending, trying to rein in the excesses of Democrats, and checking the growth of government. It is true that Democrats are more likely than Republicans to support welfare programs that benefit low-income Americans, and Republicans are more likely than Democrats to cut that

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support, citing the alleged opportunities available to every motivated person and the need to foster independence and downsize government. However, it was the Democratic administration of President Bill Clinton that “ended welfare as we know it” by slashing Aid to Families with Dependent Children (AFDC), the main cash assistance program at the time. And Republicans and Democrats seem equally eager to throw welfare money at corporations and defense and to fund welfare programs that benefit their wealthy donors and constituents. More to the point, the mythology “misrepresents who benefits from federal welfare programs.”1 All Americans receive some form of government assistance through either public programs or federal tax expenditures. And the largest programs direct resources not to low-income Americans but to middle- and upper-income Americans. Why do the myths about social welfare spending resound so durably in American politics? Among other reasons, politicians themselves have ginned them up. While campaigning for president in 1976, Ronald Reagan fired up audiences with a story about a “welfare queen” he had unearthed in Chicago who had scammed various private individuals and government agencies out of some $150,000 per year in tax-free income. Reagan used this character as a stand-in for all public assistance recipients. The story found traction in a context of racialized hostility to public assistance welfare spending. For many Americans, the narrative confirmed the racist stereotype of Black “welfare cheats” and fanned their resentment of welfare recipients in general. That resentment and the myths that stoke it remain a defining feature of twenty-first-century discussions of welfare policy. Who among us has not heard a story about a panhandler getting up off the sidewalk, walking to his BMW, and driving away with a trove of cash handed over by gullible dogooders? Or the welfare recipient who had another baby in order to increase her welfare check? Or the person in a grocery checkout line who used food stamps to buy expensive steaks and nutrition-free frozen waffles, then walked to her car—yes, again a BMW—and drove away? Or the lazy parasite who sits at home all day watching television and gorging on Cheetos, compliments of victimized taxpayers?

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Although many of these stories are fabricated or exaggerated, the main problem is not that they are wholly devoid of truth. The main problem is that critics of welfare spending project these examples upon all welfare recipients. The popularized composite of a welfare recipient is, unsurprisingly, a young African American single mother who deliberately bears more children in order to collect more welfare money and live comfortably on the dole for life. The stereotype has never been accurate. Since 1995, with lifetime limits, “workfare” requirements, and other stringent eligibility requirements in place, the stereotype is factually impossible. Although the stereotypes of welfare recipients rarely accurately portray reality, they provide convenient cover for opponents of welfare who want to slash spending on it. According to a 2018 survey, 44 percent of Americans hold an unfavorable view of “welfare.”2 Ironically, these welfare critics are all recipients of government assistance in one form or another. Confusion over what “welfare” includes muddles debates about it. Economists typically include tax expenditures and corporate welfare, which I cover in other chapters and will not repeat here. Some include education and other social capital investments in a discussion of social welfare—I won’t include these in the discussion here, either. Instead, I will focus on social insurance and means-tested programs. While all Americans receive benefits from social insurance programs, only lowincome Americans receive benefits from means-tested programs. The United States spends much more on the former, ensuring that welfare spending benefits all income groups. As measured in total dollars, this spending favors middle- and upper-income groups over low-income Americans.3

Social Insurance: Those Who Need Less Get More Social Security Social Security, created in 1935 as the Old-Age, Survivors, and Disability Insurance program, provides income support for retirees, survivors of qualifying recipients, and disabled

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individuals. In 2020, approximately one-sixth of the US population received Social Security benefits. People not employed for wages are not covered except through spousal benefits. This includes, for example, stay-at-home parents. Benefits go to retirees (approximately 70 percent), survivors (10 percent), and disabled people (20 percent). Measured in terms of 2019 absolute dollars spent ($1 trillion) and as a percentage of overall federal government spending (23 percent), this is the largest single program in the US budget, surpassing even defense.4 The United States spends more on Social Security alone than on all means-tested programs combined. Social Security is funded through the regressive payroll tax (6.2 percent for Social Security, 1.45 percent for Medicare). The benefits formula combines regressive and progressive calculations. Higher-income recipients receive higher absolute-dollar payments over more years than do lower-income recipients, while lower-income workers receive a higher proportion of their previous earnings than do higher-income workers. Appreciating the importance of Social Security as a form of income support for retirees requires some context. Over the last generation, defined-benefit pensions, which once guaranteed a set lifetime income in return for a specified number of years of pension-covered work, have yielded to defined-contribution pensions that offer no such guarantee. The trend lines crossed in 1992 at 40 percent coverage. Since then, defined-contribution coverage has risen to approximately 70 percent, while definedbenefit coverage has declined to 15 percent overall (4 percent in the private sector, down from 60 percent in 1980).5 Definedcontribution pensions—most commonly 401(k) and 403(b) retirement plans—require that employees invest in their own retirement through regular payments, typically deducted from their paychecks. Some employers provide a whole or partial match of their employees’ contributions. Many employers, especially in low-wage service sectors, offer no affordable retirement plans whatsoever to workers they employ. Investment of any sort, including a defined-contribution retirement account, is difficult or impossible for millions of working Americans who may or may not earn enough to cover basic living expenses, much less set aside money for investment in a retirement account. In 2016, a typical household headed by

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someone age fifty-six to sixty-one, approaching retirement age, had saved only $21,000 in a retirement account, and 38 percent of this age group had nothing whatsoever in a retirement account. One 2016 study by the Economic Policy Institute found that the median amount saved for all working-age families in the United States was a scant $5,000. Some individuals and families have savings in other assets, especially home equity. However, according to one study by the Kaiser Family Foundation, approximately half of Medicare recipients (mostly retirees) had less than $71,000 in home equity in 2016.6 Given that many estate planners recommend a nest egg at retirement of a laughably out-of-reach $1 million, the problem is obvious: a growing number of Americans with little, if any, retirement savings. For these Americans, Social Security offers the only income support they can count on in retirement. And that income support is hardly generous. In 2020 the average beneficiary received $18,036 for the year. The good news is that amount was above the 2020 poverty line of $12,760 for an individual. Social Security has helped reduce the official poverty rate among seniors from four in ten to one in ten since its creation. The bad news is that the poverty line is a measure of deprivation, not income adequacy. Many retirees without adequate pension coverage—in other words, most retirees—work full or part time after reaching retirement age, and many see a decline in their living standards. Yet Social Security represents the single biggest source of income in retirement for all but the top 20 percent of Americans, who live mostly off earned income, pensions, and investments. Social Security represents 83 percent of total household income for the lowest quintile of retirees, 83 percent for the second quintile, 64 percent for the middle quintile, 44 percent for the fourth quintile, and 16 percent for the highest quintile.7 Soaring medical costs, vanishing defined-benefit pensions, inadequate savings, and a relatively meager Social Security check have created a “bankruptcy boom” among older Americans. Retirees filed for bankruptcy in 2018 at a rate three times that of 1991. Driving this threefold increase in bankruptcy is the decades-long shift of risk from employers and the government to individuals, who, because of changes in the economy over the same period, are increasingly unable to make up the difference.8

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Social Security is a social insurance program, therefore everyone who pays into the system for at least ten years, including millionaires and billionaires, qualifies for benefits. Although eligibility only requires ten years of paying into the system, retirement benefits are calculated based on an Average Indexed Monthly Earnings (AIME) formula taken from the thirty-five highest-earning years of participation in the workforce. The benefit amount is then calculated according to the following formula: 90 percent of the first $885 in AIME, plus 32 percent of AIME between $885 and $5,336, plus 15 percent of AIME above $5,336 and below $9,979. In 2021, at full retirement age of sixty-six, the maximum monthly benefit was $2,917, or a $35,004 annual retirement benefit. This is somewhat misleading, however, since, perversely, benefits above $25,000 for individuals and $32,000 for couples are subject to taxation. Retirees can earn a credit of 8 percent per year for delaying retirement. AIME makes the formula for calculating benefits progressive, but it still guarantees that higher-income retirees will receive larger benefit checks than lower-income retirees. They need less but get more. Since women tend to earn less than men in the workforce, their monthly and annual benefits generally lag behind those of men. This is partly offset by their longer life expectancy. Additionally, women are more likely than men to assume stayat-home domestic responsibilities, foregoing participation in the paid workforce. So they are less likely than men overall to qualify for benefits linked to their own earnings. If they collect spousal benefits after their spouse dies, they receive half their spouse’s benefits. Overall, high-income retirees live longer and collect more benefits over more years than low-income retirees. Lowincome Americans’ life expectancy is diminished by factors such as lack of access to quality health care, increased likelihood of working physically demanding jobs, and environmental factors more likely to threaten their health and safety. Due to racialized factors such as overall lower incomes and lower life expectancy, Black and Hispanic people collect fewer lifetime benefits overall than White people. In short, low-income retirees get smaller checks over fewer years than high-income retirees. The people who retire with

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the least receive the least in Social Security benefits. Women generally get smaller checks over longer years than men. Black and Hispanic people get smaller checks over fewer years than White people. This adds up to an upward redistribution from lower-income people, women, and people of color to affluent White men for this, the largest single welfare program in the United States. As noted by one study published by the conservative American Enterprise Institute, “Social Security is, at least, not very progressive and might in fact be regressive— transferring money from the poor to the rich!”9 Social Security reform efforts have been driven in recent years largely by concerns over the program’s long-term solvency. In 2020, it was estimated that the Social Security Trust Fund would run dry in 2034. To avert this scenario, various reform proposals have been floated. Progressive proposals include raising or eliminating the payroll tax cap and means-testing benefits. The payroll tax cap basis was set in 1977 when it captured 90 percent of aggregate wages. Every year since then, the cap is adjusted upward based on average wages of all workers. But the 6 percent overall of Americans who earn above the tax cap have seen their wages rise much faster than the average, meaning the tax base had declined from 90 to 84 percent by 2017. So in 2017, 16 percent of aggregate wages were not subject to the payroll tax, accounting for approximately one-third of the estimated shortfall in contributions to the Social Security Trust Fund. And this does not count the substantial investment income not subject to the payroll tax. Means-testing benefits would potentially reverse the upward redistribution that currently occurs through Social Security. Does a billionaire or multimillionaire really need a Social Security check every month? Clearly not. Some believe, though, that anyone who has paid into the system should draw from it. But many of the taxes every American pays fund programs that they do not directly benefit from. Why should the payroll tax be different? Regressive proposals include further raising the retirement age. As indicated above, this hurts low-income retirees the most since their life expectancy is lower and therefore their years of drawing benefits fewer. Benefits could be cut across the board, again hurting low-income retirees the most since

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they depend on their monthly checks more than high-income retirees. The payroll tax, already regressive in its current form, could be increased, making it even more regressive. Finally, some would-be reformers have advocated abolishing Social Security entirely in favor of a system of “individual retirement accounts” into which workers would or would not contribute, depending on their aversion to risk and their ability to fund participation. This last proposal clearly harms low-income individuals who can barely pay for basic living expenses and for whom saving for retirement is an unaffordable luxury. Individual retirement accounts would also be vulnerable to the vagaries of the stock market.

Medicare Medicare is the national health insurance program for people age sixty-five or older and some people with disabilities. Since Congress enacted Medicare in 1965, it has generally enjoyed bipartisan support. Measured in terms of 2019 absolute dollars spent, $630 billion, and as a percentage of overall federal government spending, 14.3 percent, this is the second-largest single program in the US budget, surpassed only by Social Security.10 Like Social Security, Medicare is a social insurance program, meaning eligibility is automatic for all retirees, or their spouses, who paid qualifying payroll taxes. Those who fit into neither category can enroll and pay a monthly premium. In 2017, Medicare provided health insurance for over 58 million Americans, 49 million of them retirees or beneficiary survivors and 9 million disabled people. Medicare, like Social Security, is funded primarily by the regressive payroll tax, 1.45 percent of the total 7.65 percent payroll tax. User fees generate additional funds. Total Medicare spending, expected to continue rising rapidly as the population ages, is projected to increase from 47 million enrolled in 2010 to 79 million in 2030. Lower-income Medicare recipients tend to need more health care but live shorter lives. Whether or not they are able to access that health care is a separate question. Many rural poor suffer limited access to health care facilities. Many are marginalized people of color whose lifetime financial status shows more points of stress, leading to more challenges to their health and to health-care access. Women live longer than

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men overall, so they are likely to participate more years than men. Upper-income recipients generally enjoy more access to private health care in retirement.11 Funding challenges, driven by an aging population and rapidly rising health care costs, have driven reform proposals. The proposals generally mirror those floated for Social Security and carry the same regressive and progressive implications. Attempts to reform Medicare by limiting access and lowering benefits across the board or by raising payroll taxes are regressive in that they would hit lower-income Americans hardest. Proposals to limit access and lower benefits for the top income groups or to raise their payroll taxes are progressive. None of these proposals, whether progressive or regressive, make much headway against stiff opposition by retirees, many of them members of the powerful lobbying group AARP (formerly the American Association of Retired Persons). Legislators eyeing the next election are understandably reluctant to move aggressively.

Unemployment Insurance Unemployment insurance provides cash benefits to employees who have been injured on the job or laid off through no fault of their own and who have earned above a minimum amount of wages during a qualifying period of twelve to eighteen months. Federal and state governments offer these programs to US employees without a means test. States provide most workers’ compensation coverage, while the federal government covers federal employees. The program is funded by a payroll tax levied on employers with a minimum number of employees or paid employee hours. Most qualifying employers pay both a federal and state unemployment tax. The federal program was created in 1939 with the passage of the Federal Unemployment Tax Act (FUTA), which pays the costs of administering the state programs. In 2019, the FUTA tax rate was 6.0 percent on the first $7,000 paid in wages to each employee during a calendar year. However, employers can claim up to 5.4 percent of their state unemployment taxes as a credit, making the effective FUTA tax rate on employers 0.6 percent, or a token $42 per employee per year.

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Each state passes its own unemployment tax act that specifies its tax rate and tax base. Most adhere closely to the FUTA guidelines, resulting in a system that few employers find burdensome and many small businesses avoid altogether. Because each state creates its own system, benefits vary widely, ranging from $235 in Mississippi to $742 in Massachusetts in 2019. Benefits, which are taxable, are generally calculated as a percentage of the employee’s earnings. In other words, higher-income earners receive higher unemployment benefit amounts, and vice versa. Generally, the standard eligibility period is twenty-six weeks (six months), but extensions are sometimes possible during periods of high unemployment and under exceptional circumstances, such as the Covid-19 pandemic. The total cost of unemployment insurance varies with the rate of unemployment and the number of people who apply for benefits. Reflecting the impact on unemployment of the Great Recession, federal and state governments combined to spend $520 billion during the five years between 2007 and 2012, for an average of $104 billion per year. Reflecting the steady economic expansion beginning during the Barack Obama administration, by 2019 the annual cost had dropped to approximately $29 billion.12 In its March 2020 response to the Covid-19 pandemic—the Coronavirus Aid, Relief, and Economic Security Act—Congress included $260 billion to increase individuals’ unemployment benefits by $600 per week. This added benefit ended in July 2020. A second relief package finally arrived in late December 2020 but added only $300 per week to unemployment checks. A final tally is pending, but it will be considerable. Unemployment insurance stabilizes the economy during recessions and other periods of high unemployment by subsidizing consumer demand. Opponents claim it depresses employment by imposing costs (taxes) on employers. The aforementioned math should demonstrate that their argument is disingenuous at best. Opponents also claim moral hazard, saying the program encourages at least some recipients to delay reentry into the workforce, preferring to live off the dole. The evidence for this claim is mixed. Economists’ studies of the program’s effect on workforce reentry during the Great Recession concluded that it increased unemployment by 0.1 to 2.0 percent. A 2011 Congressional Budget Office report found

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that even if unemployment compensation convinces some people to ignore job openings, those openings are quickly filled by new entrants into the labor market. Another study found that the delay in reentry was approximately the same among benefit recipients and nonrecipients, suggesting no moral hazard effect.13 The flat tax rate plus the low cap makes the FUTA tax technically regressive. But since the tax is levied on only employers, it is also progressive, at least superficially. Its progressivity declines to the degree that employers pass the cost along to employees in the form of lower wages. Because this welfare program is available only to Americans employed during the previous twelve to eighteen months, the long-term structurally unemployed, who are generally very low-income Americans, do not qualify. It also excludes part-time workers who are disproportionately lowerincome individuals, women, and people of color. These factors likely nullify any progressivity in unemployment insurance.

Means-Tested Welfare: Those Who Need More Get Less Americans qualify for means-tested welfare programs if their income—their “means”—falls below a designated threshold. Means-tested welfare spending thus flows to low-income individuals and families by definition. That helps explain why it is constantly under attack. Whether or not it redistributes downward depends on the source of the funds. Many low- and middle-income taxpayers fund their own access to means-tested programs, making them less redistributive than they could and should be. Most recipients of the six major forms of public assistance are parents of dependent children below the age of eighteen. Many recipients either work part-time or full-time themselves or live in a household with at least one working adult. Various studies consistently estimate misuse of welfare spending at between 2 and 8 percent, with half of that due to error, not deliberate fraud by recipients. And that old canard about having more babies in order to live opulently on the

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additional welfare money? Highly unlikely, given that the additional increment available in the most generous states barely covers the cost of diapers, while some states reduce or cancel your welfare check if you have another baby while receiving public assistance. In 2018, fourteen states had policies penalizing recipients who bore additional children. In Massachusetts, a single parent with one child received $578 in cash assistance each month. But if a second child was born while the family was receiving cash assistance, that child was ineligible, and the family received $100 less per month, for a grant of $478.14

Medicaid Medicaid originated in 1965 as Title XIX of the Social Security Act to cover medical expenses of low-income Americans. This includes long-term care for the elderly who have exhausted their personal assets.15 The legislation required the federal government to match state funding of the program. The exact amount of funding and eligibility requirements have from the beginning varied considerably by state. Under the Affordable Care Act of 2010, the federal government committed to expanding Medicaid coverage by offering to pay up to 90 percent of expansion costs. Expansion would cover anyone earning up to 138 percent of the federal poverty level. Despite this generous offer, and reflecting ongoing hostility to supporting welfare spending for lowerincome Americans, many Republican-controlled state legislatures declined, and still decline, to expand coverage. In one illustration from July 2018, Governor Paul LePage of Maine refused to expand Medicaid coverage in the state, even though Maine voters approved expansion a year earlier, by 59 to 41 percent, in a ballot initiative. LePage had already vetoed expansion five times and vetoed a spending bill that approved $60 million to pay the first-year cost of expansion by taking money from tobacco settlements and surplus funds. He announced he would rather go to jail than approve the expansion, citing its impact on the state budget. The expansion would have added coverage for 70,000 more Maine residents, adding to the 264,000 already in the program. In 2019, Medicaid provided coverage for approximately one in five Americans, or about 73 million people, at a total cost of approximately $600 billion. The federal government

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paid approximately two-thirds (62 percent) of this amount, and states financed the rest (38 percent).16 Since states have wide latitude in determining eligibility, coverage varies considerably from state to state. By 2019, some thirty-three states had expanded Medicaid to parents and childless adults earning up to 138 percent of the poverty line. The other seventeen states in that same year typically limited coverage to working parents with incomes up to 44 percent of the poverty line and denied coverage to childless adults over twenty-one who were not disabled, pregnant, or elderly, no matter how low their incomes. Approximately three-fourths of recipients live in a household that includes at least one employed adult, and approximately half of these households include at least one adult working full-time. Their coverage under Medicaid means their employer provides no affordable coverage, and they earn too little to purchase coverage. As noted in an earlier chapter, this represents a taxpayer subsidy for corporations and their owners. Reflecting its hostility to spending for low-income individuals and families, the Donald Trump administration’s February 2018 budget proposed to cut $1.439 trillion in Medicaid over the 2019–2028 period. This amount almost exactly equals the tax cuts passed by the Trump administration in December 2017 of $1.455 trillion for the same period, with most of the benefits flowing to high-income groups. In a further attempt to cut support for Medicaid and punish recipients, in January 2018 the Trump administration gave states the option of adding work requirements to recipients. By August 2019, nine states had done so, and six more were awaiting approval.17 The punitive character of this “reform” is hard to overstate. Many recipients already work. Unfortunately, they work at one of the tens of millions of US jobs that do not provide an affordable health care benefit or a living wage. Many of the remaining recipients are caregivers of children and elderly family members or are too sick to work. The intent of this legislation is clear: drive as many people off Medicaid as possible, whatever the costs in human suffering. Like Medicare and health-care spending overall, and for many of the same reasons, total costs are rising rapidly. Undeserving poor people are not the driver of rising government spending on health care. The root problem is that the United

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States spends double the average of other affluent nations, while reaching fewer people and providing less primary care. Prices on high-tech services such as imaging procedures and on prescription drugs, which are more than twice as high in the United States as in other affluent countries, drive this problem of rapidly rising costs, not lazy welfare cheats. Americans spend trillions of dollars annually on health care, and the amount increases every year.18 Private corporations owned mostly by affluent people siphon off many billions in profit from the system.

Supplemental Nutritional Assistance Program The Supplemental Nutritional Assistance Program (SNAP) provides cash assistance in the form of coupons or debit cards to qualifying individuals and families to purchase food. The United States initiated its first Food Stamp Program in 1939 in part as a means of helping soak up large farm surpluses. Recipients received food stamps redeemable for surplus foods. This initial program, which assisted some 4 million people at its peak, ended in 1943. Eighteen years later, in 1961, Congress and President John F. Kennedy instituted a Pilot Food Stamp Program that lasted three years. The program was formalized in 1964 as part of President Lyndon Johnson’s War on Poverty. In 2008 it was renamed the Supplemental Nutritional Assistance Program. In 2019, SNAP cost the federal government $60 billion. The Trump administration proposed to cut this by approximately $17 billion in the 2020 budget and by $220 billion over the next decade. Most households that draw SNAP benefits do so temporarily. The average length of time on the program is eight to ten months. According to the Pew Research Center, in 2012 nearly onefifth (18 percent) of Americans had drawn food stamps at some time in their lives, reflecting the Great Recession and its lingering effects. In 2014, about 46.5 million Americans received food stamps, or about 15 percent of the total population. By 2018, this had dropped to roughly 40 million Americans, reflecting the gradual improvement of the US economy. Nevertheless, approximately 17 percent of all US children lived in households that received SNAP benefits. SNAP benefits are awarded based on need. Very low-income households receive higher benefits than households closer to the

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poverty line. In 2020, the average SNAP recipient received a modest $125 a month, or approximately $1.39 per meal. Generally, SNAP benefits are available to able-bodied adults without dependents for only three months in any three-year period if they do not work or participate in a job-training program for a minimum of twenty hours a week. Evidence suggests that work requirements significantly decrease SNAP participation while only marginally increasing workforce participation.19 In late 2019, congressional Republicans and the Trump administration pushed legislation to cut food stamp benefits for up to 700,000 low-income Americans by tying them to work requirements. In the same farm bill, they increased corporate welfare for agribusiness. The Trump administration proposed to pay victims of its own tariff war with China some $28 billion in farm subsidies as a balm for the damage its policy had caused. Approximately three-fourths of the subsidies targeted the largest 10 percent of farming companies.

Earned Income Tax Credit The Earned Income Tax Credit (EITC) functions as a form of means-tested social welfare. Since it is a tax expenditure, it is addressed in Chapter 3. If added to the tally, it would add approximately $73 billion in 2021 to total means-tested welfare spending, or the total distributed downward.20 Conversely, if we add this tax expenditure to the welfare tally, it is only fair that we also add tax expenditures that favor the rich. As we have already seen, the amounts handed to the rich through the tax system far exceed anything spent on poor people. Chapter 5 on corporate welfare further addresses the use of taxpayer money to fund corporate profit.

Temporary Assistance for Needy Families In 1996, Congress and President Bill Clinton replaced Aid to Families with Dependent Children (AFDC) with Temporary Assistance for Needy Families (TANF) as the leading public assistance program providing income support for low-income families. Welfare critics mistakenly believe that TANF offers generous lifetime benefits to slackers living lavishly off taxpayers. TANF stereotypes, like those for AFDC, are far off base.

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This program is time-limited at five years total and requires beneficiaries to work, seek work, or get an education. It cost the US Treasury a relatively miniscule $16.5 billion in 2019.21 In 2018, some 3.1 million individuals received TANF benefits. Eligibility is limited to children and adults with child dependents. The federal government distributes the money as block grants to states, which have considerable leeway on how they spend—or do not spend—the money. In 2019, only one-third of the total TANF block grant funds of $16.5 billion was distributed as cash assistance. States used the other two-thirds to fund other kinds of assistance, for instance transportation or child-care subsidies (legislation allows states to allocate up to 30 percent of TANF funds as child-care subsidies), work supports, and refundable state EITC payments. The amount per recipient also varies considerably by state. In 2012, the median maximum amount across all states was $427 a month for a family of three. In 2018, this had decreased, adjusted for inflation, to $409 a month. In some states, a family of three received less than $300 a month in 2018. In 2020, in at least thirty-six states, TANF assistance was at least 20 percent below its 1996 levels after adjusting for inflation. Moreover, in every state, TANF provides assistance equal to only 60 percent or less of the poverty threshold. Most states’ benefits were below 30 percent of the poverty line.22 Since 1996, TANF has served fewer and fewer people, 4.4 million families in 1996 versus 1.2 million in 2019. The number of families in poverty has scarcely changed during that period, averaging over 13 percent. Study after study has confirmed the outcome of the shift from AFDC to TANF: higher employment among single mothers, less welfare, just as much poverty. If TANF remains the leading target of public assistance critics, it is a very small target in terms of actual dollars, and it is shrinking. It is hard to escape the conclusion that critics dislike this program not because of its cost but because of its main beneficiaries: poor single mothers and their children.

Supplemental Security Income Supplemental Security Income (SSI) is a means-tested program targeting the needs of three populations: blind or disabled children, blind or disabled nonelderly adults with limited earnings history, and individuals sixty-five and older without

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regard to disability status. It is funded by general fund taxes rather than by the Social Security Trust Fund (funded by payroll taxes). Eligibility depends only on financial need, not on work history. To meet the requirements for eligibility, you must have very few assets (in 2018, $2,000 for an individual and $3,000 for a couple) and a very limited income. The amount you receive depends on where you live and how much other income, if any, you have. Slightly more women than men receive benefits from SSI. In 2018, 8.2 million Americans collected SSI benefits. Most of these were disabled adults. The maximum monthly federal benefit for 2019 was $771 for individuals and $1,157 for eligible couples. These amounts are reduced depending on recipients’ other sources of income. Over half of SSI recipients have no other source of income, so they draw the full amount. The Social Security Administration estimated SSI’s 2017 and 2018 costs to the Treasury at approximately $55 billion each year and the 2019 cost at $56 billion.

Housing Assistance The US Department of Housing and Urban Development offers three kinds of housing assistance: subsidies for privately owned housing in which the owners offer reduced rents to low-income tenants; public housing, usually in the form of affordable apartments for low-income families, the elderly, and persons with a disability; and a Housing Choice Voucher Program, commonly known as Section 8, in which recipients receive vouchers to pay for part or all of their rent. In 2019, the federal government spent approximately $34.2 billion on housing assistance for low-income households. Approximately 1.1 million households lived in federally financed public housing, and 2.1 million households received rental subsidies. To qualify, recipients must earn less than half their local area’s median income. The US national median income in 2019 was $40,100. So to qualify for housing assistance in 2019, an individual would have had to earn less than approximately $20,050. In 2017, the federal government spent $68 billion on the Mortgage Interest Deduction tax credit. Approximately 90 percent of that $68 billion went to households with incomes

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above $100,000.23 In short, US taxpayers spend approximately twice as much subsidizing housing for higher-income households as they do for lower-income households.

Women, Infants, and Children The Women, Infants, and Children (WIC) program provides federal funds for nutrition education and supplemental food for low-income mothers and their children up to age five who are at nutritional risk. The assistance is allotted in the form of coupons redeemable for milk, formula, and a strictly limited array of other foods. The program is means-tested at 185 percent of the federal poverty level for families. WIC is, and always has been, tiny as a proportion of overall federal spending. The food-supplement portion of the program cost approximately $5 billion annually during the post–Great Recession years of 2009 to 2012 and $4.6 billion in 2016; in 2020 it was declining. The nutrition-education and administration portion is funded at approximately $2 billion per year. The total cost of WIC in 2019 was estimated at $5.75 billion. Participation peaked at 9.2 million recipients in 2010 and has decreased since then. At its peak, recipients were issued an average of $555 in food supplements per year, or $46 per month.24

General Assistance State General Assistance (GA) programs provide a safety net for those individuals who are in need but fall through the cracks of federal programs. GA programs offer the only cash assistance to adults without children. Generally, recipients are very poor and do not qualify for other assistance programs. Recipients in the twenty-five states that in 2020 still offered GA programs included poor adults who had no minor children, were not disabled enough to qualify for SSI or benefits under Social Security, and were not elderly. Only eleven of these states provided aid to childless adults without a disability. Some states offered cash or voucher benefits, while others paid basic service providers directly. In recent years, many states have cut or canceled their GA programs, despite the ongoing need. GA benefits, already very modest, have shrunk in nearly every state that still pro-

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vides GA funds due to legislative initiative or the result of inflation. In almost all GA states, the benefit is less than half the poverty line, and in half of those states it is less than onequarter of the poverty line. Time limits on benefits vary considerably by state.25

Adding It Up In the popular imagination, social welfare spending flows unequivocally downward to lower-income Americans, offsetting rising income inequality. At best, this needs to be qualified; at worst, it is simply wrong. Measured in terms of absolute dollars, the two largest welfare programs in the United States are Social Security and Medicare. Both are valuable programs that deserve continued funding at potentially higher rates. But both deliver more dollars to middle- and upper-income Americans than to lowerincome Americans. As shown in Table 4.1, in 2019 the federal government spent over twice as much on social insurance welfare ($1,630 billion) as it did on means-tested welfare ($773 billion). Twothirds (67.8 percent) of all social welfare spending by the federal government funded social insurance programs. These social insurance programs disproportionately favor middleand upper-income groups who receive higher payouts and live longer to collect them. Take Medicaid out of the mix, and only approximately one-tenth of all social welfare money funded means-tested programs that target the poor. Not only do we spend more on social insurance programs, but more Americans participate in them in any given year. In 2019, some 71 million Americans received Social Security benefits, and 60 million received Medicare benefits. How long they receive Social Security and Medicare benefits depends on how long they live. As noted earlier, higher-income groups tend to live longer than lower-income groups. According to the US Census Bureau, in 2012, while the United States was still clawing its way out of the Great Recession, approximately 52.2 million people, or 21.3 percent of the population, participated in one or more means-tested programs,

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Table 4.1 Total Federal Social Welfare Spending in 2019

Social Welfare Program Social Security Medicare Medicaid SNAP (food stamps) TANF SSI Housing assistance WIC Total

Dollars Spent in 2019 (billions)

Percentage of Total Federal Social Welfare Spending

$1,000 $630 $600 $60 $17 $56 $34 $6 $2,403

41.6 26.2 25.0 2.5 0.7 2.5 1.4 0.2

Note: This table excludes unemployment insurance and general assistance, both funded primarily at the state level.

on average, each month. In 2019 that number remained above 20 percent. The largest portion of these recipients were Medicaid recipients. The smallest were TANF and GA recipients combined—ironic, given the close association in the public mind of TANF with “welfare.” Almost every American is on the dole sooner or later, in one way or another. If we demonize low-income recipients, we do so for reasons other than how they allegedly drain the Treasury. Given these funding priorities, government redistribution has offset only a small fraction of the surge in pretax inequality over the last fifty years. There has been almost no growth in after-tax incomes after transfers for the bottom 50 percent of working-age adults, despite the increase overall in government spending on welfare caused largely by rising costs of social insurance programs and the Great Recession. The disposable post-tax income, including cash transfers, of the bottom 50 percent has remained stuck at $16,000, almost exactly the same as pre-tax incomes.26 In short, incomes pre-tax and post-tax (with transfers) are almost identical. That means people in the bottom 50 percent are paying as much in taxes as they receive in transfers. In the United States, we apparently give to lower-income groups with one hand while taking comparable amounts with the other. Meanwhile, the 40 percent of Americans in the fiftieth to ninetieth percentiles received more in 2014 in government social welfare transfers (including both social insurance and meanstested programs) than the bottom 50 percent of Americans. The

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top .01 percent, with assets over $100 million, received more in government transfers in 2014 than the average household in the bottom 50 percent. One determinant of this trend is longer life spans of the wealthy, so they collect more in Social Security and Medicare. Many middle- and some upper-income Americans are also drawing on Medicaid to fund long-term care and end-of-life care. The benefits of means-tested programs are generally not indexed to inflation, unlike Social Security. This means that, absent proactive policy adjustments, the real value of meanstested benefits goes down every year. Most social welfare transfers today flow either sideways or upward. This continues and confirms a trend identified in earlier studies. According to Mimi Abramovitz, author of one previous study on the distributional effects of welfare spending, “The record shows that social welfare programs serving the middle and upper classes receive more government funding, pay higher benefits, and face fewer budget cuts than programs serving only poor people.”27 Contemporary opponents of social welfare spending continue to push reforms that cut or eliminate means-tested public assistance programs. The dismantling of the US social welfare safety net continues.

Welfare for Those Who Need It the Most Even if social welfare spending resulted in a massive downward redistribution of resources in the United States, the ethical foundations for doing so should be unassailable. The dominant ethical frameworks that Americans profess to hold dear all exhort us to care for the vulnerable and the marginalized. This is expressed, for example, in the Catholic Church’s “preference for the poor” and in humanist insistence on meeting everyone’s basic human needs. When we systematically fail to meet those basic human needs, we fall short of our professed ethical obligations. When we attack or dismantle the social safety net inherited from the New Deal and the Great Society, and when we demonize welfare recipients, blaming them for the sin of poverty, we espouse values more in line with Social Darwinism than Judeo-Christianity or humanism.

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The attacks on social welfare spending for low-income Americans are disguised with faux appeals to fiscal responsibility and individual responsibility, combined with myths of social mobility and economic opportunity. Low-income Americans receive pitifully little in social welfare support, far less than their European counterparts. A June 2018 United Nations report excoriated the Trump administration for exacerbating the problem of poverty in the United States. In his signature response to any criticism, in July 2018, President Trump declared victory in the “war on poverty.” Republicans in Congress, eager to fund their trilliondollar tax cut for the wealthy, embraced this preposterous claim by amplifying their assault on means-tested social welfare spending. They imposed work requirements on unemployed recipients of noncash benefit programs such as Medicaid, food stamps, and housing assistance. Workfare indeed puts people to work. But it does not alleviate their poverty. And it may drive recipients further into poverty as work-related expenses like transportation and child care deplete family budgets more than the income can offset. We demand more and more of welfare recipients in the form of workfare while asking less and less of employers. This speaks volumes about the ethical commitments of policymakers intent on punishing recipients while protecting the interests of the affluent. Most low-income people work hard. Anyone who doubts this should try to survive on minimum wage plus whatever stingy public assistance they can cobble together. The cobbling itself is mind-numbing and humiliating. It requires navigating intentionally demeaning and punitive rules, protocols, and paperwork.

Notes 1. Christopher Faricy, Welfare for the Wealthy: Parties, Social Spending, and Inequality in the US (New York: Cambridge University Press, 2015), 1. 2. See Suzanne Mettler, “The Welfare Boogeyman,” New York Times, July 23, 2018. 3. For studies documenting the flow of benefits to different income groups, see, for example, Mimi Abramovitz, “Everyone Is Still on Welfare: The Role of Redistribution in Social Policy,” Social Work 46, no. 4 (October 2001): 297–308; Mimi Abramovitz, Regulating the Lives of Women: Social Welfare Policy from Colonial Times to the Present, 2nd ed. (Boston: South End Press,

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1996); Linda Gordon, Pitied but Not Entitled: Single Mothers and the History of Welfare (New York: Free Press, 1994); Frances Fox Piven and Richard Cloward, Regulating the Poor: The Functions of Public Welfare, 2nd ed. (New York: Vintage, 1993); and Faricy, Welfare for the Wealthy, 2015. 4. “Policy Basics: Where Do Our Tax Dollars Go?” Center on Budget and Policy Priorities, April 9, 2020, www.cbpp.org/research/federal-budget/policy -basics-where-do-our-federal-tax-dollars-go. 5. “Ultimate Guide to Retirement,” CNN Money, https://money.cnn.com /retirement/guide/pensions_basics.moneymag/index7.htm. 6. Monique Morrissey, “The State of American Retirement: How 401(k)s Have Failed Most American Workers,” Economic Policy Institute, March 3, 2016, www.epi.org/publication/retirement-in-america/#charts; Gretchen Jacobson et al., “Income and Assets of Medicare Beneficiaries, 2016–2035,” Kaiser Family Foundation, April 21, 2017, www.kff.org/medicare/issue -brief/income-and-assets-of-medicare-beneficiaries-2016-2035. 7. “Thousands of Millionaires Collect Social Security,” Face the Facts USA, George Washington University, March 5, 2013, www.facethefactsusa.org /facts/millionaires-receiving-social-security. 8. See Deborah Thorne et al., “Graying of US Bankruptcy: Fallout from Life in a Risk Society,” Indiana Legal Studies Research Paper No. 406, Social Science Research Network, August 5, 2018, https://papers.ssrn.com/sol3 /papers.cfm?abstract_id=3226574. 9. Don Fullerton and Brent Mast, Income Redistribution from Social Security (Washington, DC: American Enterprise Institute, 2005), 64. The authors cite several other studies that reach similar conclusions. 10. Juliette Cubanski, Tricia Neuman, and Meredith Freed, “The Facts on Medicare Spending and Financing,” Kaiser Family Foundation, August 20, 2019, www.kff.org/medicare/issue-brief/the-facts-on-medicare-spending -and-financing. For Social Security and Medicare facts, see “Fact Sheets,” Alliance for Retired Americans, February 6, 2017, https://retiredamericans .org/2017-social-security-medicare-factsheet. See also Mariacristina De Nardi et al., “Medical Spending of the US Elderly,” Fiscal Studies 37, no. 3–4 (September–December 2016): 717–747. 11. On the redistributive implications of Medicare spending, see “Income and Assets of Medicare Beneficiaries, 2016–2035,” Kaiser Family Foundation, www .kff.org/medicare/issue-brief/income-and-assets-of-medicare-beneficiaries -2016-2035. 12. See, for example, Tami Luhby, “Unemployment Benefits Cost: $520 Billion,” CNN Business, November 29, 2012, https://money.cnn.com/2012 /11/29/news/economy/unemployment-benefits-cost. 13. Council of Economic Advisors and the Department of Labor, “The Economic Benefits of Extending Unemployment Insurance,” Obama White House, December 2013, https://obamawhitehouse.archives.gov/sites/default /files/docs/uireport-2013-12-4.pdf; “Unemployment Insurance in the Wake of the Recent Recession,” Congressional Budget Office, November 2012, www .cbo.gov/sites/default/files/cbofiles/attachments/11-28-Unemployment Insurance_0.pdf. 14. Kalena Thomhave, “Battle over TANF Family Cap Intensifies,” Spotlight on Poverty and Opportunity, October 3, 2018, https://spotlightonpoverty .org/spotlight-exclusives/battle-over-tanf-family-cap-intensifies. 15. According to the Kaiser Family Foundation, the typical annual cost of nursing home care in 2016 was $82,000, approximately three times the annual income of most seniors.

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16. Robin Rudowitz, Kendal Orgera, and Elizabeth Hinton, “Medicaid Financing: The Basics,” Kaiser Family Foundation, March 21, 2019, www.kff.org /medicaid/issue-brief/medicaid-financing-the-basics; Robin Rudowitz et al., “Medicaid Enrollment and Spending Growth: FY 2020 & 2021,” Kaiser Family Foundation, October 14, 2020, www.kff.org/medicaid/issue-brief/medicaid -enrollment-spending-growth-fy-2020-2021. See, especially, “Medicaid & CHIP,” Kaiser Family Foundation, www.kff.org/state-category/medicaid-chip. 17. Arizona, Arkansas, Indiana, Kentucky, Michigan, New Hampshire, Ohio, Utah, and Wisconsin. See “Medicaid Work Requirements,” American Academy of Family Physicians, August 2019, www.aafp.org/dam/AAFP/documents /advocacy/coverage/medicaid/BKG-MedicaidWorkRequirements.pdf. 18. In 2018, Americans spent $3.6 trillion, or 18 percent of GDP, on health care. “National Health Expenditure Data,” Centers for Medicare and Medicaid Services, www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends -and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical. 19. See, for example, Timothy Harris, “Do SNAP Work Requirements Work?” Working Paper 19-297, Upjohn Institute, December 2018, https:// research.upjohn.org/up_workingpapers/297. Also “Chart Book: SNAP Helps Struggling Families Put Food on the Table,” Center on Budget and Policy Priorities, November 7, 2019, www.cbpp.org/research/food-assistance /chart-book-snap-helps-struggling-families-put-food-on-the-table. 20. Erika Williams, Samantha Waxman, and Juliette Legendre, “How Much Would a State Earned Income Tax Credit Cost in Fiscal Year 2021?” Center on Budget and Policy Priorities, March 9, 2020, www.cbpp.org /research/state-budget-and-tax/how-much-would-a-state-earned-income -tax-credit-cost-in-fiscal-year. 21. “The Temporary Assistance to Needy Families (TANF) Block Grant: Responses to Frequently Asked Questions,” Congressional Research Service, December 30, 2019, https://fas.org/sgp/crs/misc/RL32760.pdf. 22. Ashley Burnside and Ife Floyd, “More States Raising TANF Benefits to Boost Families’ Economic Security,” Center on Budget and Policy Priorities, December 9, 2019, www.cbpp.org/research/family-income-support /tanf-benefits-remain-low-despite-recent-increases-in-some-states. 23. Will Fischer and Barbara Sard, “Chart Book: Federal Housing Spending Is Poorly Matched to Need,” updated March 8, 2017, Center on Budget and Policy Priorities, www.cbpp.org/research/housing/chart-book-federal-housing -spending-is-poorly-matched-to-need; Vanessa Williamson, “The Only Good Thing About the Tax Bill,” Brookings Institution, December 20, 2017, www .brookings.edu/blog/fixgov/2017/12/20/the-only-good-thing-about-the-tax-bill. 24. “Washington Update: Trump FY2019 Budget Requests Funding for WIC,” National WIC Association, February 12, 2018, www.nwica.org/blog /washington-update-trump-fy-2019-budget-requests-funding-for-wic-to -serve-all-projected-participants. 25. Liz Schott, “State General Assistance Programs Very Limited in Half the States and Nonexistent in Others, Despite Need,” Center on Budget and Policy Priorities, July 2, 2020, www.cbpp.org /research/family-income-support /state-general-assistance-programs-very-limited-in-half-the-states-and. 26. Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, “Economic Growth in the US: A Tale of Two Countries,” VOX, March 29, 2017, https:// voxeu.org/article/economic-growth-us-tale-two-countries. 27. Abramovitz, “Everyone Is Still on Welfare,” 299.

5 Corporate Welfare: Aid for Dependent Corporations

In 1996, President Bill Clinton and Congress may have cut Aid to Families with Dependent Children (AFDC), the main form of federal cash assistance for genuinely poor people, but they left intact another form of public assistance, Aid for Dependent Corporations (AFDC). The dollar amounts spent each year on Aid for Dependent Corporations far exceed the public assistance welfare provided through the other AFDC to low-income people. And depending on how you define and count it, spending on Aid for Dependent Corporations exceeds all public assistance combined in any given year. This corporate welfare funds a massive upward transfer of wealth to corporate owners and managers. Corporate welfare refers to government financial assistance to for-profit businesses. Public dollars are used to increase private profit or cover private financial loss. Direct, readily measurable forms include cash subsidies, grants, real estate giveaways, low-interest loans, special services, tax breaks, support for research and development that generates private profit, discounted user fees for public resources (such as logging in national forests or grazing on public lands), infrastructure subsidies, and training subsidies run through educational institutions.

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Taxpayers also generously fund corporate welfare in indirect forms. They provide aid to foreign governments that use it to buy military equipment from US weapons manufacturers. They underwrite basic social institutions that make profit possible, such as education, health, infrastructure, police, military, and the courts, while muting social unrest. They subsidize the health, housing, food, and other basic necessities of low-wage employees who work for corporations that derive profit from an underpaid workforce. Just how massive are the amounts? Even conservative estimates far exceed the amounts spent on means-tested public assistance welfare. Lower-end estimates easily reach hundreds of billions of dollars annually, while higher-end estimates reach into the trillions of dollars. The libertarian Cato Institute estimated in 2014 that the US government spent $100 billion annually on corporate welfare, defined very narrowly as subsidies and regulatory protections. Tax breaks increased this amount by about $200 billion annually. The Cato estimate did not factor in the $700 billion Troubled Asset Relief Program (TARP) bailout of Wall Street in 2008, the massive amounts handed out annually by state and local governments, or multiple other forms of corporate welfare. In a 1993 estimate, two Boise State University professors concluded that total corporate welfare expenditures in the United States for 1990 tallied to at least $170 billion (approximately $333 billion in 2020, adjusted for inflation). In 1998 Donald Barlett and James Steele estimated that the federal government spent $125 billion ($197 billion in 2020 dollars) per year on handouts to corporations whose profits totaled $4.5 trillion during the previous eight years.1 The sums vary not because of the wavering generosity of public officials but because of differences in what gets counted as corporate welfare. None of these estimates include indirect forms of support for corporate profit. Indirect subsidies to low-wage employers simply to provide their employees’ basic necessities such as health care, food, and housing account for mind-boggling amounts. Research conducted at the University of Illinois and the University of California, Berkeley, estimated that this indirect form of corporate welfare for low-wage industries amounted to roughly $243 billion annually on average from 2007 to 2011.2 And none of these estimates integrate all the

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numerous tax loopholes, called “tax expenditures,” that allow US corporations to avoid paying taxes. Most corporate welfare is handed out to large corporations. According to one source, of the $68 billion in direct grants and tax credits between 2000 and 2015 from the US federal government, two-thirds went to fewer than 600 corporations. Of the estimated $18 trillion in loans, loan guarantees, and bailouts between 2000 and 2015, 99 percent went to large companies, and 78 percent went to twelve US and foreign banks. The biggest recipients included Bank of America, which received $3.5 trillion, Citibank, which received $2.6 trillion, and Morgan Stanley, which received $2.1 trillion.3 The same trend applies to state and local handouts. A 2014 Good Jobs First study of state and local “development incentives” estimated that at least 75 percent of disclosed subsidy dollars went to 965 large corporations. Boeing got the most, over $13 billion, from Washington and South Carolina, plus 130 smaller deals from other states. Alcoa collected $5.6 billion, Intel netted $3.9 billion, GM took in $3.5 billion, and Ford Motor collected $2.5 billion in government handouts. Seventeen companies received cumulative subsidies of over $1 billion, and 182 received subsidies totaling $100 million or more. Dow Chemical received the largest number of awards, with 416. Berkshire Hathaway placed second with 310; GM came next at 307, then Walmart at 261, GE at 255, and Walgreens at 225. Forty-eight companies have received over 100 individual awards. The average number of awards to the list of 965 parent companies was twenty-six, with an average total dollar amount of $102 million. The study estimated the aggregate value of the deals at $110 billion. The parent companies on the Fortune 500 list alone received over 16,000 subsidy awards valued at $63 billion, or 43 percent of the total on the list. Strangely, eight of the top twenty-five recipients were foreignbased corporations, including three in the top ten (Fiat, Royal Dutch Shell, and Nissan) and another five in the next fifteen.4 These subsidies of large corporations make it harder for small businesses to compete. The difficulty of compiling an accurate, definitive, comprehensive accounting is compounded by deliberate attempts to hide embarrassing information about who exactly is on the dole and for how much. Many government officials are reluctant to

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release the details of deals they cut with corporations for fear of a public relations backlash. Some corporate welfare advances the public interest by, for example, encouraging investment that improves innercity communities or protects the environment. Even in these cases, public resources often flow upward from lower- and middle-income taxpayers to corporations and their owners and managers. Many of the same people who defend corporate welfare, and benefit from it, condemn public assistance recipients in blistering terms.

A Rich Pedigree Corporate welfare in the United States originated with the founders, who agreed to pay the full value for near-worthless bonds held by speculators.5 Over 200 years later, in 2008, US government officials cut a similar deal with financial speculators on Wall Street in the form of the $700 billion TARP purchase of toxic assets. In both cases, government officials defended the bailout as necessary to bolster confidence in the nation and its financial system. Whether or not they were correct, the bailouts used taxpayer money to protect private investment and to underwrite risky speculation gone very bad by upper-income Americans. In 1783, when the American War of Independence formally ended, the thirteen colonies covered a combined 512 million acres of land. By 1860, the United States had added over 1.4 billion more acres, much of it public domain and all of it taken from Native populations. While much of this land ended up in smallholders’ hands, much of it was given to large commercial and business entities. From 1860 to 1900, the US government gave away some 100 million acres of public land to railroad barons alone. The railroad barons used some of that land as right-of-way for the railroads and sold the rest to fund their westward push and line their own pockets. Railroad owners and their boosters justified the massive giveaway as necessary to fund the construction of transcontinental rail systems and more quickly settle the West. Even if you accept the official premises of this imperial

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expansion, the result was the same: public resources were used to enrich a few. Half a century later, President Dwight Eisenhower authorized the construction of an interstate highway system, ostensibly for national security purposes. The system required massive investment of public dollars in infrastructure that directly and indirectly subsidized commercial interests, at an estimated cost of $114 billion ($1.2 trillion in 2020 dollars). Since then, trillions more in federal, state, and local dollars have been spent to maintain and further develop the system. This public investment indirectly subsidizes corporate profit. Other examples from early US history include hundreds of millions of dollars (trillions in 2020 dollars) poured into US waterways in support of commerce, subsidies for the shipping industry through the US merchant marine, low-interest loans for shipbuilding, subsidies for the aviation industry, construction of the Panama Canal to increase shipping profits, and many more. Corporate welfare has long supported expansion of US commercial interests outside the United States. The US ExportImport Bank, established in 1934, hands out corporate welfare to promote US products overseas. According to the Mercatus Center, in 2014 ten corporations, including Boeing, GE, Caterpillar, and Bechtel, received 76 percent of the Bank’s assistance. And at least three-fourths of its loans and loan guarantees are valued at $10 million or more, meaning they are loans to large corporations, not to small businesses.6 The US Foreign Agricultural Service, with a mission that includes increasing exports of farm products, hands out billions to help US corporations promote their products abroad. Examples from the 1990s include $500,000 to Campbell Soup Company to promote V-8 Juice and soup in Argentina, $1 million to the US Pet Food Institute to sell Friskies in Japan, and $3 million to the US Rice Federation to promote Uncle Ben’s in Turkey, Poland, and Saudi Arabia. For 2019, examples included $13.0 million to the US Meat Export Federation, $8.9 million to the US Grains Council, $1.4 million to the Pet Food Institute, $14.5 million to the US Cotton Council, $5.4 million to the American Soybean Association, and $6.3 million to the US Wine Institute. The total price tag for this slice of corporate welfare in 2019 was $176.8 million, some $20 million more

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than the annual federal funding for the National Endowment for the Arts.7

Direct Handouts Given the massive, sprawling nature of corporate welfare, a comprehensive accounting falls outside the scope of this book. The following discussion highlights several direct and indirect forms.

Sports Stadiums If you own a professional sports franchise and you want a new stadium with all the amenities, what do you do? Go to the bank and borrow the money? Take it out of the players’ salaries? Draw from your own personal fortune? The answer to all three questions: only if you are a chump. Why spend your own or your players’ money when you can get taxpayers to fund the stadium? So you go to government officials and twist their arms. You tell them to pay up or face the consequences associated with losing the team. You can do that because government officials elsewhere are promising you fat bribes to lure you and your team to their cities. With rare exceptions, you get the money. Public financing of privately owned sports franchises offers one familiar illustration of how taxpayers subsidize corporate profit, rich people’s wealth, and of course the multimillionaire salaries of professional athletes. It may be true that in return taxpayers get the prestige of hosting a professional team in their city. It may also be true that the multiplier effects, including local economic stimulus, job retention and creation, and tax revenues generated by those multiplier effects, are sometimes considerable. But common sense and nearly nine out of ten economists tell us that these are bad deals for taxpayers.8 Between 1960 and 2010, ninety-one sports stadiums were built with public funding, twenty-two of them fully paid for by taxpayers through outright subsidies, tax abatements, hotel taxes, general obligations, sales taxes, bonds, and lottery or

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gambling revenues. Between 2000 and 2010, over forty-five sports stadiums were either built or renovated, with an average cost of $412 million, and many included some form of public subsidy. Six new stadiums were built from 2011 to 2015, and at least twelve more have been in the works since 2016. Most of them have included public financing. In 2009, New York taxpayers contributed $616 million of the $850 million price tag for the Mets’ Citi Field and $1.2 billion for the new $2.3 billion Yankee Stadium. The same taxpayers now pay double what seats used to cost. Wealthy athletes and team owners are reaping the benefits.9 Cleveland Cavaliers owner Dan Gilbert, with a fortune estimated by Forbes at $6.3 billion in 2018, decided that Quicken Loans Arena (rebranded in 2019 as Rocket Mortgage Fieldhouse) needed renovations. The estimated tab: $282 million, including construction and interest on the loans, with payments spread over seventeen years. In an agreement reached with the city of Cleveland, the Cavs agreed to pay half, while ticketholders and county hotel users would pay the rest. Cavs officials promised not to add a surcharge to ticket prices to cover their share, but ticket prices were nevertheless expected to rise, whether or not anyone admitted that the rise at least partly covered the team’s share of costs. And as ticket prices rose, low-income fans would be increasingly priced out of attendance. The admissions tax on Cavs playoff games from 2016 to 2023 would be diverted for the renovations. This creative version of zombie economics assumed that the Cavs would make the playoffs during those years, a dubious proposition since superstar Lebron James decamped for Los Angeles in 2018. An additional $3 million would come from increased food, alcohol, and merchandise sales during that period, again assuming enough team success to bring in the fans. A county hotel bed tax would add $44 million, and county reserves would provide another $16 million.10 These are only the direct measurable costs. This public money could be invested instead in desperately needed infrastructure, education, low-income housing, or mass transit. At least some of these alternative projects are better investments because they increase long-term productivity and economic growth beyond what any sports stadium can offer.

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Moreover, benefits are broadly shared, rather than poured so predictably into owners’ and athletes’ pockets. The city of St. Louis offered the billionaire owner of the NFL Rams, Stan Kroenke, $400 million in state and city money for a new stadium, hoping to keep him in St. Louis. Kroenke eventually declined the offer anyway and in 2015 built in Inglewood, California, southwest of downtown Los Angeles. He used his own money to build a $1.9 billion stadium, suggesting either that St. Louis should have offered a more enticing bribe or it would not have mattered anyway. Meanwhile, the Oakland Raiders were also considering a move to Los Angeles. Las Vegas offered them $1.4 billion in taxpayer money to move there instead. Team owner Mark Davis, worth a relatively paltry $500 million, took the offer. The Raiders moved to Las Vegas in 2020.11 In Atlanta, the NFL Falcons built a $1.6 billion stadium with public financing by the city of Atlanta and the state of Georgia estimated at $700 million. The team financed its share through “personal seat licenses” costing up to $45,000 per seat and sponsorships valued at $900 million and more. Additionally, the team sold the naming rights to Mercedes-Benz in a deal that will last for at least twenty-seven years. Both parties to the deal refused to disclose terms. In short, owner Arthur Blank, cofounder of Home Depot with a 2018 estimated net worth of $4.2 billion, will not be paying a dime for the stadium and is wary of public blowback.12 These are only illustrations, familiar to anyone who follows the news. Many more could be detailed.

Retail and Manufacturing The e-commerce giant Amazon warrants special attention as an illustration of corporate welfare. According to Good Jobs First, Seattle-based Amazon had collected approximately $2.8 billion from taxpayers in at least thirty states through 2019 in public subsidies for its fulfillment centers, data centers, and film productions. The company cut twenty-four deals in 2017 alone. Then, in September 2017, Amazon announced that it would open a second headquarters nicknamed HQ2. The announcement sparked a frenzy among public officials in over 200 cities in the United States, Canada, and Mexico vying to

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stuff taxpayer money into the company’s accounts. The offers included tax breaks, expedited construction approvals, promises of infrastructure improvements, new crime-reduction programs, and other incentives. Precise details are hard to determine since many of the offers were secret, suggesting that both Amazon and public officials knew the deals were controversial and potentially embarrassing. Amazon’s largest shareholder, Jeff Bezos, worth an estimated $188 billion in mid2020, clearly does not need taxpayer assistance.13 Nevertheless, city and state officials wanting to seriously contend for HQ2 swallowed hard and packaged lucrative handouts. In one offer to Amazon that was made public, the Maryland legislature approved a subsidy package that raised the state’s bid to $8.5 billion. If Maryland got the deal, the biggest beneficiaries would ironically be the surrounding states of West Virginia, Pennsylvania, and even Delaware, whose taxpayers would pay none of the subsidies but would likely get some of the jobs, assuming they were willing to commute into Maryland. Over $4.9 billion of the package would come from a tax credit equal to 5.75 percent of Amazon’s employee salaries. This would drain needed revenues from the state’s budget, creating more pressure to raise revenues from regressive consumption taxes that in turn increase inequality. 14 Amazon announced a shortlist of candidate cities on January 18, 2018, after which the candidate cities, supported by state funds, continued to expand their offers. On November 13, 2018, in a surprise move, Amazon announced that it would split HQ2 between two locations, each employing an estimated 25,000 workers: Arlington, Virginia, and Long Island City, New York. Arlington had offered a relatively paltry $573 million in incentives, while Long Island City’s incentive package added up to over $1.85 billion. In the resulting controversy, and amid opposition to the deal by residents of New York City and elsewhere, Amazon changed its mind and backed out of the Long Island City location.15 The Amazon deal especially grates on smaller retailers whose profitability Amazon threatens. Why, they ask, subsidize the giant retailer while effectively penalizing the smaller ones? Why hand out public money to the behemoth that is driving you out of business?

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These competitions to lure the Amazons of the world pit cities and states against each other and drain public monies badly needed for public education and public works that would more effectively lift local economies and more broadly improve livelihoods. Many New Yorkers believed that the taxpayer money offered to Amazon should be used instead to repair its crumbling subway system. If the Amazon deal appears sketchy, the deal Wisconsin cut with the Taiwan electronics manufacturer Foxconn beginning in 2017 raises even more questions. The deal initially included a $3 billion incentive package for a project expected to employ between 3,000 and 13,000 workers. Assuming the best—that Foxconn actually came through with 13,000 jobs—it would still cost the state over $230,000 per job, for jobs that mostly (93 percent of the total) would pay less than $15 per hour. At that wage, the average worker would need to work nearly twenty years to earn that $230,000 promised to Foxconn per job. Take the lower jobs figure, 3,000, and it gets much worse at $1 million per job. City and state officials subsequently raised their offer to $4.1 billion, perhaps in response to Foxconn’s apparent waffling about its exact plans and whether or not it would actually deliver. Additions included $764 million in incentives cobbled together from local governments near the proposed plant, $164 million for highway infrastructure connecting to the planned development, and $140 million for energy infrastructure paid for by all of the utility’s customers. At $4.1 billion, the deal would cost every household in Wisconsin $1,774. The only guaranteed beneficiaries of the deal were Foxconn owners and executives. Jeffrey Dorfman, writing in Forbes, opined that there is “no hope” of ever recouping the government funds spent to attract Foxconn. He concluded that the entire deal was better viewed as a “vote-buying scheme,” funded by taxpayers.16 In this case, the vote buyer was then governor Scott Walker, trying (unsuccessfully) to win reelection in 2018. In addition to providing the financial incentives, the Walker administration also exempted Foxconn from the state’s environmental rules and gave the green light to discharge manufacturing waste into surrounding wetlands and to reroute nearby streams. The state also exempted Foxconn from completing an environmental impact statement. Most egregiously in some people’s eyes, the Walker administration gave

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Foxconn permission to siphon water from Lake Michigan, violating the Great Lakes Compact signed by US states and Canadian provinces surrounding the Great Lakes to protect them. These environmental giveaways add costs that are hard to quantify but in the end could dwarf up-front dollar costs. In June 2018, Foxconn admitted that it would not be building the kind of manufacturing plant it had promised. Its new plans scaled back its investment from $10 billion to $2.5 billion. The company announced further scale-backs in August 2018, resulting in dramatic cuts in the number of manufacturing jobs offered, now mostly replaced by robots. It actually broke ground for construction in the summer of 2018, but construction continued and buildings stood empty in 2020.17 Advocates of corporate welfare often defend it as allegedly producing new jobs. The record suggests skepticism. At best, the welfare for corporations sometimes produces new jobs or protects existing jobs. As the Foxconn deal illustrates, corporate welfare recipients often overpromise on the number of jobs, and the total cost per job sometimes far exceeds sensible investment in them. Sometimes jobs actually disappear after the company passes along the handouts to its shareholders and executives.18 The recent GM plant closings illustrate this all-too-familiar trend. GM announced in December 2018 that it would close five plants in 2019, laying off thousands of workers. This included the Lordstown, Ohio, plant, which had drawn over $60 million in state and local handouts over the previous decade alone. Since 1985, GM has received subsidies of $5.6 billion from various state and local governments, in addition to another $825 million from the federal government. Additionally, it has been the beneficiary of one of the largest taxpayer-funded loans to a private corporation, some $50 billion, as part of the TARP bailout. GM Lordstown also received $118 million in concessions from the United Auto Workers and a $500 million windfall from the December 2017 corporate tax cut. In response to questions about the plant closings and layoffs, GM CEO Mary Barra simply noted that her responsibility to shareholders trumped all other considerations. Occasionally taxpayers are treated to a moment of blunt honesty.19 Chattanooga, Hamilton County, and the state of Tennessee in 2008 ponied up $577 million in subsidies for Volkswagen

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(VW), at the time the largest corporate handout to a foreignheadquartered company. Almost all of the $554 million came from regressive local and state taxes, amplifying the upward redistribution of money. It included $229 million for training costs and infrastructure, $86 million in land and site improvements, state tax credits worth $106 million over thirty years, and local tax abatements of $133 million over thirty years. In return, VW promised to create 2,000 jobs in Chattanooga, amounting to $288,500 per job. They promised starting wages of $15 to $23 per hour, making these the lowest-paid auto manufacturing jobs in the country. In the same year, another Tennessee city, Clarksville, along with the state, handed over $340 million to Hemlock Semiconductor to develop a silicon manufacturing plant. By 2014, the plant had closed, and all 500 jobs disappeared. Tennessee taxpayers also paid out $200 million in corporate welfare to Wacker Chemie and over $100 million to Amazon.20 Every year, legislators hand over billions of dollars of taxpayer money to weapons manufacturers, especially for the research and development of new technologies. Between 1981 and 2000, the US federal government spent $450 billion for research and development of arms.21 Good Jobs First, which tracks corporate welfare, estimates that Boeing alone had by 2019 received over $14 billion in subsidies from state and local governments, mostly from the state of Washington. The company had taken an additional half billion in federal subsidies, for a total of approximately $15 billion in subsidies.22 It received an additional whopping $74 billion in loans, loan guarantees, bond financing, and bailout assistance from local, state, and federal governments. Naturally, such help produces a fat bottom line. Boeing reported net earnings of $9 billion for 2017 alone, offering its shareholders a bonanza made possible partly by draining public coffers and diverting the funds to corporate owners and managers. Corporate welfare for defense contractors also targets the demand side of the exchange by offering assistance to foreign countries that purchase US weapons. Boeing again warrants special attention. During 2007 and 2008, approximately twothirds of US Export-Import Bank loan guarantees went to companies and countries that puchased Boeing aircraft. By 2012, the Bank’s loan guarantees were even more skewed, with 82 percent going to Boeing customers. The state of Wash-

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ington recently awarded Boeing over $8 billion to ensure ongoing production in the state of its 777 jetliner, preserving or creating some 8,500 jobs. The math on that blockbuster deal: as much as $1 million per job.23 Countless promises of new and better jobs are often broken, sometimes brazenly. In 2012 Eaton Corporation of Cleveland received $31.9 million in US government subsidies, then promptly relocated headquarters to Ireland. The US Energy and Defense Departments handed out $12 million to McDermott International, Inc., between 2000 and 2015, even though it had incorporated in Panama in the early 1980s. In 2010 a Washington, DC, developer received a $46 million tax credit to create 300 construction jobs; by 2016 only 90 jobs had been created. From 1992 to 1995, the six largest defense contractors, all collectors of public subsidies, laid off 178,000 US workers. In 2011, the state of North Carolina handed out $30 million in tax credits to Hollywood producers, creating seventy new jobs. The price tag per job: nearly a half million dollars. As Donald Barlett and James Steele concluded in their 1998 Time Magazine exposé of corporate welfare, it might have made more sense to simply write each worker a check for that amount and send them home.

Agriculture Policymakers compete piously with each other to “protect the family farm” through generous farm subsidies which top $20 billion a year. Inconveniently for the narrative, most of the money goes to large corporate farms, not to small family farms. Approximately 40 percent of all US farms are subsidized, and most of the money goes to large agribusinesses. The largest 15 percent of farms receive over 85 percent of crop insurance monies and other subsidies. Between 1994 and 2014, at least fifty billionaires received taxpayer handouts in the form of farm subsidies.24 In late 2019, congressional Republicans and the Donald Trump administration pushed legislation to cut food stamp benefits for up to 700,000 low-income Americans by tying them to work requirements. In the same farm bill, they increased corporate welfare for the largest 10 percent of agribusinesses. The Trump administration proposed to pay victims of its own tariff

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war with China some $28 billion in farm subsidies as a balm for the tariff fallout. The tariffs undermined the sale of US agricultural products to China by goading China to retaliate with tariffs on farm commodities. Rather than risk the political fallout in upcoming elections, the Trump administration decided to compensate the farmers for their losses. In some cases, the amount of compensation exceeded the lost farm income. Approximately three-fourths of the subsidies targeted the largest 10 percent of farming companies. As noted by one observer, it is “hypocritical to demand that the poorest Americans pull themselves up by their bootstraps while covering the business risk of the nation’s wealthiest agribusinesses.”25 To justify this round of bailouts to farmers, Trump insisted that China would pay the full cost. Economists scoff at this disingenuous ploy to disguise the real source of the payments: American taxpayers and consumers paying an indirect regressive tax, levied as a tariff. Agriculture subsidies, once intended to help family farmers through droughts and other crises outside their control, now enrich agribusiness owners and, perversely, encourage the overproduction of commodities such as corn that end up as additives in countless products.26 According to one estimate from the documentary film Food, Inc., as much as 90 percent of the processed food in a grocery supermarket contains additives derived either from corn or soybeans.

Tax Expenditures Some of the most generous handouts to corporations occur through tax provisions that let them off the hook for billions of dollars annually, even while recording whopping profits. A Tax Foundation study published in August 2017 estimated corporate tax expenditures for the coming decade, with eyepopping results. Deferral of income from controlled foreign corporations alone would cost the Treasury $1.348 trillion. Deferred taxes for financial firms on certain income earned overseas would deduct $202 billion. Accelerated depreciation of machinery and equipment, another $164 billion. The deduction for US production activities, $152 billion. And all other corporate tax expenditures, $859 billion. The total cost to the US government: $2.725 trillion by 2028.27

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Nike earned over $10 billion in US profits from 2008 to 2015 but paid only 18.6 percent in US federal taxes on that profit— about half the official corporate tax rate. It did this by shifting much of its profit to offshore tax havens. At last count, Nike has fifty-four subsidiaries in tax havens, including a dozen in Bermuda, even though it operates no stores in Bermuda. Nike also used the stock option loophole to avoid $965 million in federal and state taxes during that same period. This tax provision allows companies to deduct the difference between the value of the shares and what the employee pays for the stock. Since the stock is awarded to the CEO as compensation, Nike and other companies can deduct the full value of the shares. This offers little incentive to rein in executive pay.28 During the 2010–2015 period, Facebook earned US profits of $14.8 billion and paid 16.5 percent in US taxes. During three of those years, it paid no taxes at all to the US government. Facebook used the stock option loophole to save $5.8 billion. In short, US taxpayers are subsidizing Mark Zuckerberg’s personal fortune, estimated in 2020 at $85.4 billion.29 In 2020, Apple was the third-most valuable public company of all time, at an estimated $1.3 trillion. In 2016 it netted $45.7 billion in profits after taxes, making it the most profitable Fortune 500 company for the third year in a row. To avoid taxes on those profits, Apple shifted domestic profit into tax havens. This gave the company access to a loophole that allows US corporations to defer paying taxes on profits of foreign subsidiaries until they have been paid as dividends to the US parent company. Apple is able to defer some taxes indefinitely. As of November 2017, Apple had logged $252.3 billion in profits offshore on which it had paid no US taxes, saving its owners some $78.5 billion in US taxes. In November 2017, US Fortune 500 companies disclosed holding $2.6 trillion in profits offshore, allowing them to take advantage of this loophole.30 The tax expenditure known as accelerated depreciation allows corporations to write off the cost of equipment faster than it actually wears out. It cost taxpayers $22 billion in 2000, $70 billion in 2012, and, according to Office of Management and Budget estimates, $274 billion from 2012 to 2017. The Joint Congressional Committee on Taxation estimated in 2011 that a full repeal of this writeoff would save the Treasury $724 billion from 2012 to 2021.

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Most of these illustrations preceded the Trump administration’s cutting of corporate taxes in December 2017. The Trump legislation simply amplified taxpayer giveaways to corporations. Of course, some tax expenditures come in defensible forms. These might include, for example, solar energy credits, credits to US auto manufacturers for investing in clean fuel technology, and tax expenditures used to keep Americans employed during the coronavirus epidemic. But some corporate tax expenditures take very strange and even more dubious forms than the aforementioned illustrations suggest. A corporation can be found guilty of malfeasance, pay fines for it, and then turn around and deduct the fines from future tax liabilities. In 2013 JP Morgan Chase made a $13 billion mortgage settlement with the US government, then wrote most of it off as tax deductible, getting $4 billion of it back. Corporations can also write off their private jets, costing taxpayers $3 billion per year.31

Indirect Handouts As detailed elsewhere, US taxpayers subsidize low-wage employers by paying for the employee benefits those employers don’t provide to the tune of multiple billions of dollars annually. The rich irony is that many of the same people who receive, or support, generous corporate welfare assistance complain about low-income public assistance that they make necessary through low wages. The total amounts are difficult to estimate with precision, but we can say with assurance that they add up to a significant drain on the US Treasury. More importantly for the theme of redistribution, they add up to a huge transfer of wealth from low-income workers and taxpayers to corporate owners and managers. By providing social welfare spending, the government puts cash into people’s pockets that people then use to consume goods and services that help ensure corporate profit. Social welfare spending also underwrites the cost of family maintenance by spending on education, public health, and cash assistance. These help ensure the supply of cheap labor while muting social unrest.

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You would think that taxpayer money aimed at inner-city development would be a straightforward case of downward redistribution of resources. Whatever the broadly diffused benefits of using government funding to stabilize and develop inner cities, financial benefits often flow upward in amounts that sometimes exceed their downward flow, as illustrated by Cleveland’s Battery Park townhome development. Beginning in 2007 some 200 townhomes and single-family homes were constructed on the site of an abandoned Eveready battery factory on Cleveland’s near west side. The developer, Vintage Development Group, priced units at market rate, well above the price affordable to most residents of the surrounding neighborhood. To sweeten the pot, each unit came with a full fifteen-year property tax abatement, a government-subsidized mortgage interest rate at 1 percent below market rate, and state and local government funds for infrastructure development. While the surrounding neighborhood and many of its residents benefited from the flow of resources into the community, most of the immediate benefits went to the mostly White, relatively affluent townhome residents who purchased their homes at subsidized levels, to business owners benefiting from the influx of affluent consumers into the neighborhood, and to the developer whose profit was subsidized with public dollars. Less affluent residents shouldered many of the costs associated with the development. These included gentrification pressures that undermined affordable housing options in the neighborhood, opportunity costs associated with the public subsidies, increased traffic and decreased parking options, and inconveniences associated with living near a construction zone. Another indirect form of corporate subsidy takes the form of cleaning up the mess created by corporations that pollute in order to make a profit. In 1980, Congress created the Superfund, part of the Comprehensive Environmental Response, Compensation, and Liability Act, to address the many thousands of urban “brownfields,” former industrial sites, lead-polluted facilities, accident locations, and other environmental disaster sites spread throughout the United States. In 2020, the Environmental Protection Agency estimated that some 450,000 sites remain in need of abatement. Profitable corporations created these sites in part by refusing to pay the cost of cleanup, preferring instead to pocket the cash. These costs were displaced onto

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surrounding communities and future generations, which are now struggling with them. Congress currently finances the Superfund to the tune of approximately $1 billion a year, well below the amount needed to address the problems and spur urban development. State and local officials sometimes also contribute taxpayer funds to deal with the pollution.32 One illustration involves former vice president Mike Pence. His father was vice president of Kiel Brothers Oil Company, and his brother, Greg, was later president of the same company, which operated over 200 gas stations. Kiel declared bankruptcy in 2004, leaving the states of Indiana, Kentucky, and Illinois with a cleanup cost that by 2018 already exceeded $21 million. The exact amount is unknown because Indiana officials refuse to release cost estimates for twelve of the remaining contaminated sites, presumably out of loyalty to Pence. The federal government, meanwhile, agreed to clean up a plume of cancercausing solvent from the Kiel empire that threatened to leak into Pence’s hometown drinking water. Immediately after Kiel Brothers filed for bankruptcy, the state of Indiana, under Democratic governor Joe Kernan, sought $8.4 million from the company for cleanup and fines. However, under his successor, Republican Mitch Daniels, the claim was dropped. The company did pay $8.8 million for “indemnity and defense costs” related to the pollution and cleanup but noted as an aside that over half of that money ($4.5 million) came from the state of Indiana. Despite these events, Mike Pence and his family retain their reputations as budget hawks critical of government spending. And as a surreal coda, Daniels appointed former Kiel Brothers president Greg Pence as deputy commissioner of the Indiana Department of Environmental Management.33 Corporations rely on political and social institutions that make profit possible. A partial list includes stock markets, the legal system, patent and copyright systems, intellectual property rights, contract law, the military and police, transportation infrastructure, the energy and communications grid, governmentfunded research and development, public universities, and a host of local, state, and federal agencies from the Federal Reserve to the Securities and Exchange Commission to the Federal Trade Commission. These institutions and agencies indirectly subsidize corporate profit by providing a stable context within which profits are made—a fact denied or ignored by

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many opponents of public assistance welfare who praise themselves or others as “self-made” success stories.

Welfare for the Rich Low estimates of spending on Aid for Dependent Corporations based on narrow definitions of corporate welfare begin in the hundreds of billions of dollars annually. High estimates based on more expansive definitions reach into the trillions of dollars annually. The price tag rises even higher if we factor in the cost to democracy. We the people are imprisoned in hostage-like circumstances by the demands of corporations for handouts. And they can back them up with very real threats of decamping, should their demands not be met. Proponents of unrestrained capitalism and corporate power may view this as a wholly acceptable price to pay. But anyone committed to popular sovereignty rather than corporate sovereignty must view this “corporate welfare economy” with alarm.34 Some corporate welfare produces socially beneficial outcomes in the form of a healthy economy with more and better jobs. This should be weighed against the massive upward redistribution that occurs through corporate welfare. Recipients of Aid for Dependent Corporations sometimes give back as economic and community anchors. But sometimes they use the money to plump up their bottom lines, a prelude to enriching corporate owners and managers. Sometimes they take the money and run, leaving taxpayers hanging. Many of the benefits, if and when they do appear, simply represent a moving of jobs from one part of the country to another, the result of a race-to-the-bottom zero-sum bidding process in which one city’s or state’s gain is another’s loss. By handing out generous subsidies to large corporations, cities and states shift the tax burden onto smaller companies, working families, and low- and middle-income taxpayers. Corporate welfare from any source also encourages reckless behavior by corporations that can count on bailout money when their profit falters and they run the economy aground. Lobbyists for corporations infest Congress, state houses, and city halls with their efforts to keep the spigots turned on.

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Taxpayers underwrite private profit, often unwittingly. Billions and trillions of dollars are transferred from public coffers into private fortunes. Even if we take proponents’ claims of public benefits at face value, the conclusion remains crystal clear: public resources are pumped upward into affluent private hands. This is welfare for millionaires and billionaires. Individual recipients of corporate welfare are often not named due to “privacy considerations.” Officials apparently want to avoid publicly shaming their Aid for Dependent Corporations recipients. Such restraint goes missing when it comes to shaming recipients of public assistance welfare. Simply condemning corporate welfare is only a start. Given the realities of corporate power and the practical problem of attracting and retaining jobs, most policymakers who recognize the problem find themselves in a difficult bind. They can either accede to corporate blackmail, or they can attempt a rebellion. The latter often results in punishment in the form of lost jobs, recalcitrant corporate management, and abdication of responsible corporate citizenship. The solution lies in a national-level response. Until national legislation puts the skids on corporate welfare, we the people will find it difficult to exert sufficient control over corporate behavior.

Notes 1. Daniel Huff and David Johnson, “Phantom Welfare: Public Relief for Corporate America,” Social Work 38, no. 3 (May 1993): 311–316; Donald Barlett and James Steele, “Corporate Welfare,” Time Magazine, November 9, 1998. 2. Sylvia Allegretto et al., “Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast-Food Industry,” UC Berkeley Labor Center, October 15, 2013, https://laborcenter.berkeley.edu/pdf/2013/fast_food_poverty _wages.pdf. 3. “Corporate Welfare,” MoneyChoice, August 17, 2017, https://moneychoice .org/corporate-welfare. 4. Philip Mattera, “Subsidizing the Corporate One Percent,” Good Jobs First, February 2014, www.goodjobsfirst.org/sites/default/files/docs/pdf /subsidizingthecorporateonepercent.pdf. 5. For a history of corporate welfare in the United States, see James Bennett, Corporate Welfare: Crony Capitalism That Enriches the Rich (Piscataway, NJ: Transaction Publishers, 2015). 6. Veronique de Rugy, “The Biggest Beneficiaries of the Ex-Im Bank,” Mercatus Center, George Mason University, April 29, 2014, www.mercatus .org/publications/corporate-welfare/biggest-beneficiaries-ex-im-bank.

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7. “Market Access Program (MAP) Funding Allocations—FY 2020,” Foreign Agricultural Service, US Department of Agriculture, www.fas.usda.gov /programs/market-access-program-map/map-funding-allocations-fy-2020. 8. Scott Wolla, “The Economics of Subsidizing Sports Stadiums,” Federal Reserve Bank of St. Louis, May 2017, https://research.stlouisfed.org /publications/page1-econ/2017-05-01/the-economics-of-subsidizing-sports -stadiums; Robert Whaples, “Do Economists Agree on Anything? Yes!” Economists’ Voice 3, no. 9 (2006): 1–6. See also Roger Noll and Andrew Zimbalist, eds., Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums (Washington, DC: Brookings Institution Press, 2011). 9. Elaine Povich, “Why Should Public Money Be Used to Build Sports Stadiums?” PBS News Hour, July 13, 2016, www.pbs.org/newshour/nation /public-money-used-build-sports-stadiums. 10. Rich Exner, “Who Will Pay for the Q [Rocket Mortgage Fieldhouse] Renovations, and How?” Cleveland.com, January 11, 2019, www.cleveland .com/datacentral/2016/12/who_will_pay_for_the_quicken_l.html. 11. Povich, “Why Should Public Money Be Used to Build Sports Stadiums?” 2016. 12. Neil de Mause, “Why Are Georgia Taxpayers Paying $700 Million for a New NFL Stadium?” Guardian, September 29, 2017, www.theguardian .com/sport/2017/sep/29/why-are-georgia-taxpayers-paying-700m-for-a -new-nfl-stadium. 13. “Amazon: Taxpayer Subsidies Help Build Its Monopoly,” Good Jobs First, www.goodjobsfirst.org/amazon; Paxtyn Merten, Beryl Lipton, and Adanya Lustig, “America Bids on Amazon,” Muckrock, www.muckrock .com/project/america-bids-on-amazon-175. 14. Martin Austermuhle, “Price Check: Incentives for Amazon’s HQ2 May Cost Maryland More Than Gov. Hogan Said,” WAMU 88.5, American University Radio, April 5, 2018, https://wamu.org/story/18/04/05/price -check-incentives-amazons-hq2-may-cost-maryland-gov-hogan-said; Nathan Jensen and Edmund Malesky, Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain (Cambridge: Cambridge University Press, 2018), documents the close ties between corporate welfare and the resulting necessity of turning to regressive sales and property taxes (and police fines and penalties, plus cuts to public education) to pay for it. 15. Ben Fox Rubin, “Amazon Picks NYC and Northern Virginia as HQ2 Winners,” CNET, November 13, 2018, www.cnet.com/news/amazon-announces -nyc-and-northern-virginia-as-hq2-winners. 16. See Jeffrey Dorfman, “Government Incentives to Attract Jobs Are Terrible Deals for Taxpayers,” Forbes, September 6, 2017, www.forbes.com/sites /jeffreydorfman/2017/09/06/government-incentives-to-attract-jobs-are -terrible-deals-for-taxpayers. On the political use of corporate welfare, see again Jensen and Malesky, Incentives to Pander. 17. Bruce Murphy, “Wisconsin’s 4.1 Billion Foxconn Boondoggle,” The Verge, October 29, 2018, www.theverge.com/2018/10/29/1802 7032/foxconn -wisconsin-plant-jobs-deal-subsidy-governor-scott-walker. 18. See, especially, Greg LeRoy, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation (San Francisco, CA: Berrett-Koehler Publishers, 2005). LeRoy documents countless lost jobs and too little accountability for the recipients of corporate welfare. 19. Bennett Haeberle, “10 Investigates: GM Has Received More Than $60 Million in Tax Credits from Ohio over the Past Decade,” 10WBNS, December 9, 2018, www.10tv.com/article/news/investigations/10-investigates/10

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-investigates-gm-has-received-more-60-million-tax-credits-ohio-over-past -decade/530-b3934f4b-9e75-460f-8888-1278c095625c. 20. Chris Brooks, “Class Struggle by Other Means,” Dollars & Sense, September /October 2016, www.dollarsandsense.org/archives/2016/0916brooks.html. 21. Mimi Abramovitz, “Everyone Is Still on Welfare: The Role of Redistribution in Social Policy,” Social Work 46, no. 4 (October 2001): 304. 22. “Subsidy Tracker Parent Company Summary,” for Boeing, Good Jobs First, https://subsidytracker.goodjobsfirst.org/parent/boeing. 23. For a brief description of top corporate welfare recipients, see Sam Becker, “The Eight Biggest Corporate Welfare Recipients in America,” Showbiz Cheat Sheet, June 20, 2017, www.cheatsheet.com/money-career/high-on -the-hog-the-top-8-corporate-welfare-recipients.html. Boeing heads the list, which overall is dominated by auto manufacturers. See also Good Jobs First’s Subsidy Tracker at https://www.goodjobsfirst.org/subsidy-tracker. 24. Chris Edwards, Agricultural Policy (Washington. DC: CATO Institute, 2017), www.cato.org/cato-handbook-policymakers/cato-handbook-policy -makers-8th-edition-2017/agricultural-policy. 25. Gracy Olmstead, “Taking from the Poor, Giving to the Wealthy,” New York Times, December 11, 2019. 26. See Thomas Kostigen, The Big Handout: How Government Subsidies and Corporate Welfare Corrupt the World We Live In and Wreak Havoc on Our Food Bills (New York: Rodale, 2011). 27. Amir El-Sibaie, “Corporate and Individual Tax Expenditures,” Tax Foundation, August 7, 2017, https://taxfoundation.org/corporate-individual -tax-expenditures-2017. 28. “Fact Sheet: Nike and Tax Avoidance,” Institute on Taxation and Economic Policy, November 5, 2017, https://itep.org/fact-sheet-nike-and-tax-avoidance. 29. “Fact Sheet: Facebook and Tax Avoidance,” Institute on Taxation and Economic Policy, November 5, 2017, https://itep.org/fact-sheet-facebook -and-tax-avoidance. 30. “Most Valuable Companies in the World—2020,” FXSSI, May 23, 2020, https://fxssi.com/top-10-most-valuable-companies-in-the-world; “Fact Sheet: Apple and Tax Avoidance,” Institute on Taxation and Economic Policy, November 5, 2017, https://itep.org/fact-sheet-apple-and-tax-avoidance. 31. Karen Freifeld, Aruna Viswanatha, and David Henry, “JP Morgan Agrees to $13 Billion Settlement with U.S. over Bad Mortgages,” Reuters, November 19, 2013, www.reuters.com/article/us-jpmorgan-settlement-idUSBRE9AI0OA20131120. 32. “Overview of EPA’s Brownfields Program,” Environmental Protection Agency, www.epa.gov/brownfields/overview-epas-brownfields-program. 33. Bardford Betz, “Cleanup at Pence Family’s Failed Gas Stations Costing Taxpayers Millions,” Fox News, July 14, 2018, www.foxnews.com/politics /cleanups-at-pence-familys-failed-gas-stations-costing-taxpayers-millions -report. 34. See James Angresano, A Corporate Welfare Economy (New York: Routledge, 2016), which argues that corporate welfare is now such a defining feature of the US economy that it constitutes a new mode of capitalism. Like Angresano, Dexter Whitfield, in Public Services or Corporate Welfare: Rethinking the Nation State in the Global Economy (London: Pluto Press, 2001), raises questions about the identity of a nation-state oriented squarely to serving the needs of corporations rather than the public welfare.

6 The US Financial System: A Casino Economy

Profits from the financial sector accounted for approximately 14 to 15 percent of overall corporate profits in the 1980s. Since then, the financial sector’s share has nearly tripled.1 Corporate profitability is increasingly divorced from the process of providing goods or services to consumers and instead linked to financial speculation in diverse forms. Given the volatility in asset markets, this shift in the US economy has amplified the cycles of “boom and bust” that have always characterized capitalist economies. Karl Marx identified these cycles as the logical and inevitable result of a central contradiction of capitalism: the relentless suppression of labor costs undermines the purchasing power needed to drive production, leading to periodic oversupply and underconsumption crises. Business schools euphemistically refer to them as “business cycles.” Financial markets have always resembled giant casinos in which investors speculate on assets. A herd mentality often drives investors’ bets. If investors note that everyone else is buying a particular asset, they join the stampede to buy shares so they do not miss out on its run-up in value. Eventually, someone turns the herd by selling, sparking a stampede in the other direction of a massive sell-off.

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The upward redistribution of income and wealth in the United States and globally has been stoked by this financialization of the economy. Investors have profited handsomely overall, and sometimes spectacularly, from financial speculation. Most low- and middle-income Americans have been left out entirely or, worse, have seen their financial well-being wrecked by reckless investors. Monetary policy and financial markets reward investors while punishing efforts to achieve greater equality. Anything that threatens profit is likely to throw a scare into financial markets. And so precisely those policy choices that might effectively reverse the trickle-up effect in the US economy—for example, a living wage policy, a pro-union policy, or a wealth tax—face fierce institutionalized blowback from powerful financial institutions and their backers.

The Fed Favors Investors By the end of 2018, US workers finally began seeing modest wage increases, long promised and long delayed. This would seem to be unqualified good news. Why, then, was the Fed raising interest rates to cool the economy? Congress established the Federal Reserve System—or the Fed—in 1913 in response to financial panics in order to stabilize the monetary system. It was charged with a dual mandate of maximizing employment while stabilizing prices. The Fed has subsequently taken on a broader role in the economy of regulating and supervising the banking system, providing an array of financial services to banks and the government, and maintaining the overall stability of the financial system. It manages the supply and demand for money in the US economy by adjusting interest rates, buying and selling government securities, and regulating bank reserves. The Fed’s original dual mandate has always been contradictory. Full employment would empower workers to demand higher wages and benefits, as potential employers competed to hire from a scarce supply of workers. Under normal circumstances, full employment thus drives up the price of labor. Since high wages threaten to undermine profit or drive infla-

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tion (unless accompanied by comparable increases in productivity), or both, elites who manage the economy tend to regard it with apprehension. So the Fed and economists more generally have typically approached this conundrum by defining full employment as well above zero. Full employment is necessarily defined above zero since some people cannot or do not want to work, and some people are temporarily between jobs. The more important question is where that line is set. As recently as 2013, the Congressional Budget Office pegged full employment at 5.5 percent. Earlier, libertarian economist Milton Friedman pegged it at 6 percent, calling it the “natural rate of unemployment,” meaning the rate at which employment pressures would not drive inflationary wage increases. There is of course nothing “natural” about it. The number simply represents the deal Friedman and others were willing to make: keep 6 in every 100 workers idled in order to prevent inflation driven by undesirable wage growth, thereby protecting profit. In its ongoing attempt to manage this contradiction, the Fed has typically sided with the investor class.2 In periods of strong economic growth, as the rate of unemployment edges downward, the bargaining power of labor increases as employers are pitted against each other to hire scarce workers. As the economy moves toward full employment, and usually well before that milestone is reached, the Fed intervenes by gradually raising interest rates. Increasing the cost of credit puts the brakes on the economy, slowing or stopping the creation of new jobs. In short, the Fed intervenes to deliberately undermine the bargaining position of labor in order to protect the bargaining position of capital. It might be tempting to argue that in the last decade this formula has been abandoned. The closing of the Great Recession in 2009 (while hardly ending the hardship it wrought) marks the beginning of a long, steady period of modest economic growth, reaching nearly full employment by 2019. Based on its history, observers expected the Fed to begin raising interest rates to cool the economy and head off inflation. Initially it moved in this direction. In 2018, with low unemployment (3.7 to 4 percent) driving modest wage increases, the Fed reacted predictably by raising interest rates. It played its appointed role despite scant evidence that the modest wage

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increases were fueling generalized price inflation. Inflation for the year was projected to fall short of the Fed’s preferred 2 percent annual rate of inflation. But just the fear of inflation was enough to move it to action. However, by July 2019, the Fed began reversing direction in recognition of two factors: little sign of inflation and anemic wage growth. Wages increased at a modest 3 percent or so, a rate not deemed a substantial inflation push. By the summer of 2019, the Fed abandoned plans for additional rate increases and, instead, began dropping hints about potential rate decreases to prevent an economic slowdown. Then, in late July 2019, the Fed announced a quarter-point reduction in interest rates. The key point here, worth repeating, is that wages showed no sign of significant increases that would drive inflation and threaten profit. Had higher wage growth shown itself, the Fed would likely have intervened with rate increases to slow down the economy. The Fed specifically targets commodity inflation (including labor as a commodity) but is apparently indifferent to asset inflation. Asset bubbles in real estate and the stock market, driven sometimes by investors’ “irrational exuberance,”3 can also drive inflation, with catastrophic results for common Americans. It may appear that the Fed is protecting everyone’s interests by emphasizing its inflation-fighting role. Inflation hurts everyone, right? It depends. In fact, inflation may be good for some people. For example, a homeowner’s effective mortgage payment declines as inflation deflates the value of money. A $1,000 mortgage payment is worth more today than the same mortgage payment twenty or thirty years from now. And those who are hurt by inflation are not hurt equally. Average working people can handle modest levels of inflation better than wealthy people who live off investment income. While a relatively modest 5 percent inflation rate (inflation in the United States has averaged 2 to 3 percent since the 1980s) will take a noticeable chunk of $2,500 out of a middle-class salary of $50,000, it will wipe out all the income from an investment portfolio earning 5 percent annual interest. Americans who live partly or wholly off their investments—by definition, the wealthy—lose a higher proportion of their income from inflation than average working Americans. In theory the Fed aims for a balancing act that allows wage gains without driving inflation. In practice, the Fed usually

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emphasizes its inflation-fighting role. This undermines significant wage growth and protects the income of investors and creditors. The Fed thus functions under normal conditions as an institutionalized blowback mechanism that prevents strong wage growth.

Gambling with People’s Lives A defining feature of the modern economy, beginning in the last several decades of the twentieth century and hitting warp speed in the twenty-first century, is its transformation into a casino economy driven by speculation in financial assets. The change has dramatically accelerated the upward redistribution of income and wealth in the United States and sped up the separation of rich and poor. While an elite few profit handsomely and sometimes spectacularly, everyone else is either left out entirely or, worse, harmed in the process. Investing may be too sterile a term for the twenty-first century. It suggests thoughtful, careful, rigorous directing of individual and corporate resources into the productive economy. That still applies to some activity in the financial markets. However, much of the movement of capital into and out of the financial markets can better be described as gambling. Based on the prominence in mainstream media of reporting on financial markets—especially the hourly reports on the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ Composite Index—you would think that average Americans are transfixed. But most Americans tune out these reports. Why? Because they have little, if any, direct stake in financial markets. Approximately half of all Americans own no stock at all. In 2018, the top 20 percent of Americans owned a remarkable 93.3 percent of all stocks in the United States. And most of that, 84 percent, was held by the top 10 percent. The bottom 80 percent of Americans owned the rest, a paltry 6.7 percent.4 So while run-ups in stock prices benefit all stockholders, they disproportionately benefit the richest Americans. If the Dow Jones Industrial Average rose 32 percent between January 2017 and September 2018, we know where the money landed: in the pockets of the wealthiest Americans. And if the S&P broke the 3,000

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barrier in July 2019, setting off a celebration in business and financial media, most Americans shrugged and skipped to the sports news. This is different from saying that financial markets do not affect the lives of lower- and middle-income Americans. Far from it. Investors can improve the lives of average Americans, and they can destroy them. When they invest in the productive economy in a way that creates well-paying jobs, the benefits ripple downward and outward. However, when they make bets in financial markets that go sour, the costs also ripple downward and outward. Sometimes the costs arrive in a tsunami, as, for example, when reckless speculation in contorted financial instruments drove us into the Great Recession, in which millions of Americans lost their homes, their jobs, and any savings they may have accumulated. In the 1980s, the emergent casino economy manifested itself partly in the form of “corporate restructuring.” This euphemism refers to leveraged buyouts and hostile takeovers by corporate raiders who risked little of their own money to enrich themselves. They then dismantled the companies and sold off the parts in order to pay the debts they incurred to finance the deal. Hundreds of thousands of workers lost their jobs in the process. Hollywood A-list directors and actors brought these corporate raiders to the big screen in films like Pretty Woman and Wall Street. Apologists for this emerging casino economy justified developments as necessary to make the economy more efficient and competitive. Even if this were true, only a contorted ethical framework can justify doing so in a way that dramatically enriches a few while destroying entire companies and the lives of their employees. Speculators had plenty of help in the 1980s from policymakers beholden to corporate lobbyists. The deregulation of the savings and loan (S&L) industry during the Ronald Reagan administration fueled reckless speculation by S&L banks, leading to the bankruptcy of nearly a third of the 3,000 S&Ls in the United States at the time and the near-total collapse of the S&L industry. Naturally, taxpayers had to cover the cost, estimated by the General Accounting Office at over $480 billion ($789 billion in 2020 dollars).5 One S&L alone, Lincoln Savings and Loan, led by Charles Keating, cost taxpayers approximately $3

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billion. In a surreal moment of candor and clarity, when asked in front of television cameras whether the millions he had spent lobbying Congress for deregulation had influenced legislation in his favor, Keating responded, “I certainly hope so.” The casino economy manifested itself in the late twentieth and early twenty-first centuries in the creation of new financial instruments called derivatives, whereby the value of one financial asset is derived from the performance of another asset. If one asset goes bad, it can set off a chain reaction leading to multiple failures. Wall Street traders created and deployed these with hugely profitable results—for themselves. They also nearly brought the economy to its knees in the Great Recession. It took a massive bailout of the instigators to prevent catastrophic breakdown.

The Great Recession The roots of the Great Recession reach into the substrata of political economy in the United States, especially the surge in inequality over the last half century.6 With their wages and incomes stagnating, lower- and middle-income Americans found it increasingly difficult to pay their bills. So they borrowed. Credit card debt soared. Homeowners, struggling to keep up with payments, took out second mortgages. Deregulation in the financial industry played a role in setting the stage for abuse and reckless risk. Leading up to the Great Recession, banks targeted historically marginalized populations with risky loans in the subprime mortgage market, often leading with teaser interest rates. Lenders protected themselves from risk by dumping the subprime loans into the secondary market, where they were bundled and rebundled as derivatives. Enabled by deregulation, lenders erected a house of cards, pumped up by excessive risk taking and speculation in the housing market. This led to volatile overexposure in the banking and insurance industries. The reckoning occurred during 2007 and 2008 as lower- and middle-income Americans found themselves tapped out by stagnating income, unable to make their payments. Many defaulted on their loans, leading to the deep vulnerability of

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overexposed banks and other financial institutions. Some lenders failed, and others were sold off at bargain prices. The stock market plummeted, wiping out over $8 trillion in wealth. Unemployment reached its highest point in over fifteen years. To prevent a catastrophic breakdown in the US economy, Congress and President George W. Bush passed the Troubled Asset Relief Program (TARP) in 2008, which dispersed over $700 billion in bailout money to the large institutions while rejecting pleas to commit part of the funds to supporting individual homeowners threatened with foreclosure. They protected shareholders in the big financial institutions while allowing low- and middle-income Americans to lose their homes and positive credit scores. The Great Recession ended officially in June 2009 when economic growth resumed. Of course, the suffering it created for Americans did not end there. Over 8 million Americans lost their jobs, 6.3 million lost their homes to foreclosure, and some 2.5 million businesses went bankrupt. That kind of economic mayhem takes decades to overcome. Within months of the 2007 crash, unchastened Wall Street speculators returned to form, paying themselves huge bonuses. Thanks in part to taxpayer bailouts, bank profitability was quickly restored, and a taste for risky investments returned. A Democratic Congress and President Barack Obama pushed through the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), which briefly and ineffectively checked Wall Street abuse. Within a mere two to three years after a near-catastrophic economic collapse, it was business as usual in the casino economy. The vulnerability of the US and global economy to financial speculation remains an open secret, as one recent illustration demonstrates. On September 10, 2018, a single Norwegian futures trader, Einar Aas, working alone at home on his computer, rocked the global financial system with a single really bad day of betting high and taking huge losses. Aas, who had already pocketed a fortune from previous trading, was trading futures tied to Scandinavian electricity. Because of heavy rainfall in Scandinavia, the price of hydroelectricity plunged, killing Aas’s bets. In order to cover his losses, he needed a bailout. Fortunately for him and for the global financial system, he was able

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to secure that bailout from a central counterparty (CCP) called Nasdaq Clearing. These CCPs are designed as trip points to head off chain reactions in the financial system. Aas’s bailout nearly depleted Nasdaq Clearing’s cash reserves. Given the interconnections in the global financial system, the failure of one CCP could trigger other defaults, leading potentially to a pandemic of financial meltdown. Predictably, these CCPs are therefore dubbed “too big to fail,” making them likely candidates for government bailouts.7 It bears repeating that many traders grow fabulously rich by gambling in financial markets. When their bets pay off handsomely, the traders pocket the money. When the bets go bad, we all pay the consequences through taxpayer-funded bailouts and ruined lives. Either way, it seems, money is transferred upward.

Manipulating the Market The typical formula for profiting from a financial market is to buy low and sell high. Investors purchase an asset with the expectation that its value will rise. Assuming they guess correctly and the asset value increases, they sell the asset and pocket the difference. Some investors reverse the timing of this formula. They sell high and buy low. This is known as shorting the market, and it offers one illustration of how contorted financial speculation can enrich a few while hurting many others. An investor may have reason to believe that an asset is overvalued and vulnerable to a fall in value at some point. This investor can bet on this likelihood by first borrowing shares of the asset and immediately selling them at current market value. Then, assuming the investor has bet shrewdly, when the asset declines in value the investor buys shares at the lower price, returns the shares to the person or institution from whom they were initially borrowed (with a borrowing fee added), and pockets the difference. If the market position of the investor is large enough, he or she does not simply reap the rewards of impersonal, institutional

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forces. The investor can cause the asset’s loss of value. Since other investors are typically watching the market and the value of their assets, any movement in value catches their attention. Any large trades that result in a sudden, unexpected decline in value encourage other investors to join the stampede to unload the asset before they lose their shirts. The resulting sell-off can destroy the asset, which generates catastrophic consequences for a company and its employees or even an entire country and its inhabitants. Currency speculation illustrates this. In 1997, two hedge funds (the Quantum Fund associated with billionaire George Soros and Julian Robertson’s Tiger Fund) bet against the Thai currency, the baht, with devastating results for the Asian economy. Although the currency may have been overvalued, these two hedge funds’ shorting of it helped push the currency into a precipitous, catastrophic crash in 1997 that spread quickly to other nearby Asian economies. While Soros, Robertson, and the investors they represented profited in spectacular fashion, millions of Asians saw their purchasing power undercut by a third to over a half. This was not the first time Soros had bet against a currency and won big. Five years earlier, in 1992, he bet $10 billion against the British pound sterling, emerging with a profit of over $1 billion but nearly breaking the Bank of England in the process. Other hedge funds discovered Soros’s short and followed suit. Obliquely acknowledging his role in the devaluation, Soros commented, “Markets can influence the events they anticipate.”8 That admission should not have surprised anyone or even invited comment. Of course, his manipulation of the market was intended to “influence the events” he anticipated. The point of initiating or participating in a short is often precisely to influence market behavior in order to profit from others’ misfortune. As a fitting coda, Soros now criticizes the very system that made him a billionaire. While market “corrections” are often necessary, making them in a way that further enriches investors at a huge cost to common people is not. Attributing those “corrections” to impersonal market forces, rather than to the behavior of powerful investors and the policymakers who enable it, evades troubling questions about the ethical implications of a financial system that allows a few to profit recklessly off the misfortune of many.

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Banking and Credit Access to banking services and reasonable credit partly determines economic and financial outcomes. Unfortunately, class and race in turn determine access.9 Generally, people with high incomes enjoy ready access to quality banking services and cheap credit, while people with low incomes face limited banking services and expensive credit, if credit is available at all. Redlining refers to the banking practice of drawing a red line, literally or figuratively, around certain urban neighborhoods and deeming them off limits for lending. The explicit rationale is profit. Redlined neighborhoods overwhelmingly tend to be home to lower-income residents who are considered high risks as loan recipients. Not incidentally, they also tend to be home to predominantly Black residents. Until 1977, bankers practiced redlining openly. In 1977, Congress passed the Community Reinvestment Act designed to decrease discriminatory practices in banking and to increase investment in underfinanced neighborhoods. It would be nice if an act of Congress simply ended a practice like redlining. Unfortunately, it did not. Redlining still occurs, though in unacknowledged forms. Many inner-city (and other relatively low-income) neighborhoods are “banking deserts,” akin to so-called food deserts avoided by quality grocers. In these neighborhoods, quality banking services are often hard to find, and credit is expensive, if it is available at all. Into the breach have stepped payday lenders. Most banks make money by lending to customers who can repay the loan. The payday loan industry makes money by finding customers who are unable to repay the loan. These customers’ misfortune becomes an opportunity for profit. Many economically stressed Americans find themselves backed into impossible financial corners and become easy prey for predatory lenders. Many turn to payday lenders for loans that, in theory, they will repay on their next payday. In other words, these are supposedly short-term loans. To make it profitable, lenders charge exorbitant interest rates. According to the Consumer Financial Protection Bureau (CFPB), lenders typically charge 400 percent annual interest or higher for an average loan term of about two weeks.10 Separate finance

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charges range from $15 to $30 to borrow $100, resulting in interest rates as high as 780 percent annually in states that have imposed caps and higher in other states. It gets worse. Many payday loan borrowers, whose budgets are strained to the breaking point, find themselves unable to repay the loan after the two-week borrowing period. Their principal simply rolls over into a new loan, and then another and another in subsequent weeks and months. A $200 payday loan may stretch for years and cost borrowers thousands of dollars by the time they pay it off—if they ever pay it off. According to the CFPB, three-quarters of the industry’s loan fees come from customers who rolled their loans over at a rate of approximately ten times a year. Terms and conditions for a payday loan additionally include mandatory arbitration that favors the lender, reverse amortization (interest charges exceed loan payments, and the difference is added to the principal), fluctuating interest rates, hidden fees, and other punitive clauses in the fine print. The overall result for payday loan borrowers: a debt trap with no apparent way out.11 Congress established the CFPB in 2011 in part to check abuses by the payday loan industry. By 2016, the CFPB, along with state-level attempts to rein in the industry, began to slow and put limits on it. Enter the Donald Trump administration and congressional Republicans, beholden to campaign backers from the payday loan industry and hostile to regulation. Legislators began reducing or eliminating regulations imposed during the Obama administration. To further undermine the CFPB, Trump appointed Nick Mulvaney as director. Mulvaney, a vocal opponent of the very bureau he now directed (and doing double duty as White House chief of staff), quickly gutted enforcement, cut its budget, and refused to replace staff who resigned or retired. Revealing a profound lack of understanding of the challenges facing low-income Americans, Mulvaney said, “There’s no reason people should be taking these loans— but they do.”12 Another example of expensive credit has already been discussed. During the run-up to the Great Recession, banks made mortgage loans to borrowers whose credit history was either absent or sketchy, at “subprime” rates, meaning at higher rates than those offered in more affluent neighborhoods. These loans

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often came with teaser rates, adjustable rates, and balloon payments. When the housing reckoning arrived, it plunged millions of these homeowners into foreclosure. Expensive credit is an unfortunate fact of life for many lower- and middle-income Americans. While they suffer the consequences, private lenders reap the benefits, contributing to the trickle-up movement of dollars in the US economy.

Deficits and Debt Since 1969, the United States has run an annual budget deficit in all but five years of surplus. Four of those surplus years occurred in the 1998–2001 period, the result of a surging economy and President Bill Clinton’s tax hikes. Since then, pushed along by tax cuts and a corresponding failure to cut spending, the United States has recorded annual deficits ranging from $158 billion to $1.4 trillion. Reflecting the economic devastation caused by the coronavirus pandemic, the 2020 deficit of $3.1 trillion makes that $1.4 trillion look pleasingly modest. All credible budget projections over the next decade predict budget deficits exceeding $1 trillion per year before accounting for pandemic costs. Those annual budget deficits are tacked onto the existing national debt, totaling approximately $28 trillion at the end of 2020. Add the $12.4 trillion projected over the next decade before the Covid-19 pandemic changed the calculation. And then add the costs to the US Treasury of dealing with the pandemic and its consequences. Assuming trends already in place, by 2030 the national debt will likely be somewhere in the vicinity of $40 trillion.13 Whether or not this is cause for alarm is a matter of debate. Budget hawks see the collapse of the US economy on the horizon. More sanguine budget watchers argue that absolute dollars owed by the United States count less than their size in relation to GDP. Approached from this perspective, the United States looks relatively solvent compared to some of its OECD peers. They counsel cautious attention while warning against panic.

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More important for our purposes is the redistributive impact of US budget deficits and the national debt. Both function as mechanisms of upward redistribution and institutionalized roadblocks to progressive change. First, Republicans, conservatives, libertarians, and the occasional Democratic budget hawk use deficits and the debt as cudgels to beat back attempts to shore up the social welfare safety net. Spending on the safety net breaks the bank, they argue. But many of them then casually disregard deficits and the debt when offered an opportunity to steeply ramp up defense spending, cut taxes on the wealthy, or fund whatever program they especially favor. Second, deficits and the debt redistribute upward through the flow of interest payments on the debt. By the end of 2019, interest on the debt cost US taxpayers approximately $380 billion per year, an amount diverted each year from spending on other priorities such as social welfare. By the end of 2020, that figure neared $400 billion. Of the total $27 trillion national debt at the end of 2020, approximately one-third was owed to US investors.14 We can assume that most of those investors are affluent, with disposable income for investing. For them, the debt represents an opportunity for increasing their income. In short, owners of the debt benefit from the low taxes on their income (as we saw in Chapter 3), which helps create the debt, and then they profit by investing in the debt.

Financial Markets Imprison Policy By braking wage growth, the Fed protects the interests of banks, corporations, and investors at the expense of ordinary Americans. Investors also sometimes stop wage growth in its tracks by disinvesting in the stock market in the face of strong wage growth. High profits generally attract investors, and low profits generally drive them away. So wage growth that threatens profitability is seen as hostile to the interests of investors, who react by dumping the financial asset in favor of a safer bet. Policymakers are keenly aware of these institutionalized mechanisms in the US financial system. Even if inclined to pass

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legislation aimed at reducing or stopping the upward redistribution of income and wealth, their choices are limited, imprisoned by market forces that punish them and their constituents for taking steps suspected of being business unfriendly.15 These basic realities in the US financial system reveal a deep contradiction in macroeconomic policy advocated by many conservative and Republican politicians. Remember that supply side economics relies on a purported trickle-down effect for any political, economic, or ethical legitimacy. So, on the one hand, rising wages would represent the validity of trickle-down theory. On the other hand, the Fed and financial markets undermine that trickle-down effect by cutting it off at the knees. In 2018–2019, with unemployment approaching zero and the Fed beginning to raise interest rates in response, Trump responded to this contradiction by attacking the Fed’s policy of belt tightening, calling it “incredible,” “crazy,” “loco,” “going wild,” and “out of control.”16 But the Fed was simply following its investor-friendly script of fighting inflation, even if, in this case, inflation loomed only on the horizon without actually making an appearance. A longer-term perspective would open other possibilities. Higher wages build consumer purchasing power. This, in turn, is good for profit and the overall health of the economy. But pressing short-term considerations, especially quarterly profit-loss calculations, tend to push longer-term considerations off the table. The ethical commitments embedded in US political economy are nowhere starker than in the world of finance. We allow Wall Street traders to fill their bank accounts with dollars they reap through risky speculation. If we all benefited, as apologists claim, it would still be ethically dubious since the benefits dripping down to lower-income people scarcely register in comparison to the flood of money upward. Stock traders, money managers, bankers, and financiers enrich themselves at unprecedented levels. When their bets pay off, the rich get richer, while everyone else scarcely notices. When their bets go bad, the costs are socialized, spread throughout society. Adding insult to injury, US taxpayers bail them out. In the casino economy of the twenty-first century, selling your labor power is for chumps. The real money is in the financial markets. But most Americans cannot take that route,

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even if advisable, since they have little, if any, disposable income with which to speculate in financial markets.

Notes 1. Estimates on both ends vary, but the trend line is clear. See, for example, Ramaa Vasudevan, “Financialization: A Primer,” in Real World Macro, ed. Elizabeth Henderson et al., 37th ed. (Boston: Economic Affairs Bureau, 2018 [2008]), 233–235; and “Financial Sector Costs Us More Than Any Other Sector in Economy,” Think by Numbers, https://godaddy.thinkbynumbers.org /federal-reserve/financial-sector-costs-us-more-than-all. For discussions of the US financial system that highlight the “political” in political economy, see Doug Orr et al., eds., Real World Banking and Finance, 7th ed. (Boston: Economic Affairs Bureau, 2013); and Elizabeth Henderson et al., eds., Real World Macro, 37th ed. (Boston: Economic Affairs Bureau, 2020), especially chap. 7, “Money and Monetary Policy,” 203–234, and chap. 8, “Finance, Savings and Investment,” 235–272. 2. See Jeff Madrick’s discussion of this problem in “Low Inflation Is All That Matters,” in Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World (New York: Alfred A. Knopf, 2014), 116–137. 3. Alan Greenspan, former Fed chair and libertarian acolyte of Ayn Rand, infamously coined this lovely phrase as an indirect admission of his failure to account for the irrationality of markets. 4. Teresa Ghilarducci, “Most Americans Don’t Have a Real Stake in the Stock Market,” Forbes, August 31, 2020, www.forbes.com/sites/teresaghilarducci /2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market; Louis Jacobson, “What Percentage of Americans Own Stocks,” Politifact California, September 18, 2018, www.politifact.com/california/statements/2018/sep/18/ro -khanna/what-percentage-americans-own-stocks. 5. Robert Rosenblatt, “GAO Estimates Final Cost of S&L Bailout at $480.9 Billion,” Los Angeles Times, July 13, 1996, www.latimes.com/archives /la-xpm-1996-07-13-fi-23615-story.html. See also Davita Silfen Glasberg and Dan Skidmore, Corporate Welfare Policy and the Welfare State: Bank Deregulation and the Savings and Loan Bailout (Berlin: De Gruyter, 1997). 6. On the causes and consequences of the Great Recession, see Nancy S. Love and Mark Mattern, “Introduction,” in “The Great Recession,” ed. Nancy S. Love and Mark Mattern, special issue, New Political Science: A Journal of Politics and Culture 33, no. 4 (December 2011): 401–411. 7. See Jack Ewing and Milan Schreuer, “A Lone Trader Shook the World’s Financial System,” New York Times, May 5, 2019. 8. Rupert Hargreaves, “Here’s How George Soros Broke the Bank of Thailand,” Business Insider, September 6, 2016, www.businessinsider.com/how -george-soros-broke-the-bank-of-thailand-2016-9; Devansh Lathia, “How Soros Broke the British Pound,” Economics Review, October 16, 2018, https:// theeconreview.com/2018/10/16/how-soros-broke-the-british-pound. See also David Korten’s account of the Quantum Fund’s currency speculation in When Corporations Rule the World (West Hartford, CT: Kumarian Press; San Francisco, CA: Berrett-Koehler Publishers, 1995), 198–199.

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9. For one account, see Keeanga Yamahtta-Taylor, Race for Profit: How Banks and the Real Estate Industry Undermined Black Home Ownership (Chapel Hill: University of North Carolina Press, 2019). 10. “Payday Loan Consumer Information,” Consumer Federation of America, https://paydayloaninfo.org/facts. 11. Lisa Servon, The Unbanking of America: How the New Middle Class Survives (New York: Houghton Mifflin Harcourt, 2017), shows how deeply payday loans, and “alternative banking” practices in general, have penetrated the middle class as well as lower-income communities, resulting in more and more Americans caught in a debt trap. See also Deborah Figart, “Underbanked and Overcharged,” in Real World Micro, ed. Rob Larson et al., 27th ed. (Boston: Economic Affairs Bureau, 2020 [2014]), 80–82. 12. Nicholas Confessore, “Make America Pay Again,” New York Times Magazine, April 21, 2019. 13. For a brief history of federal deficits and debt, see Tom Murse, “History of the US Federal Budget Deficit,” ThoughtCo., August 28, 2019, www .thoughtco.com/history-of-us-federal-budget -deficit-3321439. 14. Foreign investors owned an additional 30 percent, and the US government (borrowing from sources such as the Social Security Trust Fund) and Federal Reserve together owned some 38 percent of the debt. Jeffry Bartash, “Here’s Who Owns a Record $21.1 Trillion of US Debt,” Market Watch, August 23, 2018, www.marketwatch.com/story/heres-who-owns-a-record -2121-trillion-of-us-debt-2018-08-21. 15. I am borrowing this terminology from political scientist Charles Lindblom, who argued that markets sometimes imprison policy by punishing certain policy choices. Charles Lindblom, “The Market as Prison,” Journal of Politics 44, no. 2 (May 1982): 324–336. 16. Binyamin Appelbaum, “Some Economists Say Trump Has a Point on Interest Rates,” New York Times, December 18, 2018.

7 Racialized Redistribution: Affirmative Action for White People

In previous chapters, I occasionally highlighted the racialized character of the trickle-up economy. In this chapter, I give it the full attention it deserves. The history of the United States can be told from its beginning to the present as a history of affirmative action for White people that produces systematic advantages for White people and systematic disadvantages for people of color. 1 More to the point, it redistributes income and wealth from people of color to White people, and this is a form of upward redistribution. This is exactly the opposite of the prevailing narrative that people of color are typically on the receiving end of redistribution from White people. Given the overall demographics of income and wealth in the United States, affirmative action for rich people is affirmative action for White people. In aggregate, any government policies that advantage the rich by definition advantage White people relative to Black and Hispanic people. In 2019, the median Black household earned just sixty-one cents for every dollar of income earned by the median White household, and the median Hispanic household earned seventyfour cents. In 2019, the poverty rate for Black people was over 2.5 times greater than the poverty rate for White people; it was two

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times greater for Hispanic people and nearly three times greater for Native people. In 2019, African American children were three times as likely as White children to live in poverty. The disparities are even more pronounced in wealth. In 2019, a typical White family held eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.2 Of course, socioeconomic class in the United States is considerably more complex than general demographic data can clearly portray. By focusing this chapter on how the trickle-up economy particularly disadvantages people of color, I do not mean to deny that many millions of White Americans struggle to make ends meet in the trickle-up economy. Every other chapter in this book addresses the problems of a trickle-up economy as it affects all Americans, no matter their race or ethnicity. Lower- and middle-income Americans share many political and economic interests. The fact that these points of shared class interest are often submerged beneath racial antagonisms says more about enduring racism and how some politicians harness it for political advantage than class interest. This was evident in the reaction of President Donald Trump and many of his Republican allies in 2020 to attempts by Black Lives Matter activists and their allies to address endemic problems of policing. Rather than using the 2020 demonstrations as an opportunity for racial reconciliation, Trump and his allies seized on them to incite more racist fears about violence and seek an advantage in the run-up to the 2020 election. Persistent income and poverty disparities both reflect and reinforce long-standing systemic inequalities of opportunity. Because wealthy White people disproportionately control both government and corporate policy, they exert outsize influence over access to opportunity for everyone else. Less income means more daily stresses over meeting basic needs and planning for the future. Less wealth means more missed opportunities, greater insecurity, and more exposure to vagaries of health, macroeconomic change, and bad luck. Although the US Congress has steadily diversified since the mid-1960s, progress is harder to find in other areas. For example, only five Black CEOs headed Fortune 500 companies in 2020, down from the peak of eight in 2015.

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Income and wealth disparities have deep roots in US history tied to White supremacy and affirmative action for White people. And unfortunately, the past is not past. Racism as a system of (dis)advantage remains deeply entrenched in the United States. It appears in many forms that, overall, work to the advantage of White people and the disadvantage of people of color, ensuring the flow of income and wealth from people of color to White people. Denial of racial inequities is rooted in bromides drawn from the mythology of US meritocracy: hard work, talent, pluck, and the right attitude dependably result in success. The other side of this coin, even when left unspoken, is plain: lack of success is equated with individual failures of effort, talent, and attitude. If people of color in the United States earn less, save less, and attain lower levels of leadership, they need only look in the mirror for an explanation of why this is so. Certainly, many people find success through hard work. But just as certainly, many people barely survive through hard work. Much depends on where you are born, the family and culture into which you are born, the socioeconomic status of your birth, and luck—good or bad. These factors are, in turn, deeply racialized, with people of color disproportionately forced to navigate barriers that most privileged White people only dimly understand, if they acknowledge them at all. White men have always held most of the political and economic power in this country, if not all. White people have always earned more income and possessed more wealth than people of color overall. And White people have always enjoyed privileges unavailable to people of color. This is both cause and effect of an upward redistribution of income and wealth from people of color to White people.

The Past Is Not Past An honest discussion of racialized socioeconomic inequality must sooner or later address slavery and its consequences. Estimates of the wealth generated for White people by slavery begin in the trillions of dollars. One estimate from 1996 came in at a whopping $97 trillion. Others have estimated the amount

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more modestly at a still huge $5.9 trillion to $14.2 trillion.3 Much of this wealth was passed to successive White generations, generating and sustaining its White recipients’ privilege. Had Congress acted decisively after the Civil War to offer former slaves some meaningful foundation for self-sufficiency, the subsequent history of race relations in the United States may have been less dismal. But Congress failed to make good on the promise of “forty acres and a mule,” leaving almost all the land in the South in White hands and leaving most former slaves in some form of peonage, caught in a prison of debt and sharecropping.4 This laid a foundation for systemic economic deprivation of people of color in the United States that has extended into the present. Approximately one-fourth of all US household wealth is captured in real estate. It’s no secret how and why most real estate is in the hands of White people. Most of the land in the United States was taken from Native peoples and given or sold at bargain prices to White settlers.5 This occurred over centuries, beginning in 1492. It sometimes occurred under wholly lawful pretenses, including Thomas Jefferson’s purchase of 530 million acres of land from the French at the bargain price of $15 million. Most US historians cite this Louisiana Purchase as an astute deal brokered by a visionary president. Viewed from outside the happy glow of US self-mythologizing, Jefferson’s action looks ridiculously arrogant: How can you buy and sell land that its original inhabitants still occupy, without their knowledge or consent? Land theft also occurred in violent episodes of slaughter, giving rise to epic tales of heroism by “genocidal sociopaths” such as Andrew Jackson.6 And it occurred under cover of congressional approval in legislation such as the Indian Removal Act of 1830, the Homestead Act of 1862, and the Allotment Act (Dawes Act) of 1887. The first of these acts authorized the forced removal of Native peoples from ancestral homes in the US South to lands west of the Mississippi. This opened vast tracts of land to White settlement. The second authorized the giveaway of over 270 million acres of “public land”—land formerly occupied by Native people—to White settlers. In theory, Black people qualified for land grants, but in practice almost all of the grants went to White people. The third act made further land transfers from Natives to White people possible by

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privatizing reservation land over Native objections and making “leftover” land available for purchase, almost always by White people. Strangely, much of the land on some Native reservations is now owned by White people, a result of allotment begun in the late nineteenth century. And much of the land owned by Native people within the reservation system is economically marginal, increasing the challenges of overcoming poverty among Native people.7 In short, the United States exists as a nation occupying land seized violently or through legalized extortion from its Native inhabitants. One economist in 2015 estimated the present value of that land, in the contiguous forty-eight states alone, at $23 trillion, most of it owned and controlled by White people.8 The United States grabbed more land during the so-called Mexican American War (1846–1848). Under President James Polk, the United States picked a fight with Mexico in order to annex huge chunks of it that would become the states of Texas, New Mexico, Arizona, California, and parts of other states. Most of this land sooner or later ended up in the hands of White people. The results are most stark in racialized patterns of agricultural land ownership. According to one analysis, by 2002, 96 percent of all agricultural landowners in the United States were White, 97 percent of all US agricultural land value was held by White people, and 98 percent of all agricultural acres were owned by White people. People of color owned a scant 2 percent of all agricultural land in the United States.9 During the twentieth century, the process of transferring wealth from people of color to White people took increasingly political and legal forms, while sometimes retaining the physical violence endemic to earlier seizures in forms such as lynching. Jim Crow laws directly favored White people while intentionally blocking people of color from economic, political, social, and cultural opportunities. Congress continued legislating affirmative action policies for White people. The Home Mortgage Interest Deduction of 1913 allowed the deduction of mortgage interest on tax returns. While ostensibly race-neutral, the concentration of home ownership in White hands meant this would disproportionately favor White people. The Federal Housing Administration (FHA), created in 1934, insured home mortgages for first-time home buyers, increasing the

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availability of credit, especially for low- and middle-income families. During the post–World War II years of 1945 to 1959, only 2 percent of FHA loans went to African Americans. The Social Security Act of 1935 excluded agricultural and domestic workers, most of them African American, Asian American, or Hispanic, denying them this crucial form of retirement income while providing an affirmative boost to White people. The Serviceman’s Readjustment Act (GI Bill) of 1944 in theory subsidized tuition and mortgages for all veterans. However, in practice this legislation favored White veterans since most colleges and universities did not admit Black people, and Black people were denied mortgage (and other) credit, especially in the Jim Crow South. Many people today who want to discount these realities will argue that it is all ancient history. But wealth accumulates from generation to generation. Benefits derived from systemic advantages accrue over time. So do the costs derived from systemic disadvantages. Inherited wealth and privilege are concrete, measurable traits of the contemporary United States, as are inherited deprivation and injustice. Past inequities are apparent today. White privilege and affirmative action for White people in the twenty-first century build on those inequities.

Preferential Government Spending for White People I noted before that a genuine commitment to supporting autonomy for former slaves during Reconstruction went missing in the politics of the post–Civil War era. The same can be said for commitments to racial equality today, as measured in fiscal policy. Social welfare spending is highly racialized. Since Black and Hispanic people are more likely to live in poverty, they are more likely to receive means-tested social welfare benefits.10 Means-tested programs should redistribute from top to bottom. That is their purpose. They help set a floor below which marginalized people should not sink. And if people of

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color disproportionately occupy the margins, then meanstested programs should redistribute to them. In contrast, social insurance programs funnel disproportionate benefits to White people relative to Black and Hispanic people. This includes the big spenders like Social Security, whose benefits are based on wage levels and number of years in the labor force. People of color, who tend to work in low-wage occupations relative to their White counterparts, receive lower Social Security benefits. Between 1960 and 2009, Black retired workers received between 77 and 88 percent of White monthly benefits.11 Moreover, people of color, especially Black men, face a shorter life expectancy, meaning they draw from the system for fewer years. These regressive elements are only partially offset by the progressive formula for calculating benefits, which replaces a higher percentage of preretirement earnings for low-wage workers. It is hard to escape the conclusion that “Social Security redistributes from Hispanics, Blacks, and other people of color to Whites” and that this has been the case since its inception.12 Similarly, an Urban Institute study from 2012 found that a lower percentage of unemployed Black people (23.8 percent) and Hispanic people (29.2 percent) received unemployment benefits than White people (33.2 percent) during and after the Great Recession.13 This discrepancy widened between White and Black people during the Covid-19 pandemic. As measured at mid-summer 2020, just 13 percent of unemployed Black workers drew unemployment compensation, compared to 24 percent of unemployed White workers.14 As we saw in Chapter 4, unemployment benefits are available only to individuals with a recent work history. People of color suffer higher rates of structural unemployment, therefore they are less likely overall to qualify for benefits. Overall, the US government spends more on social insurance programs that redistribute disproportionately to White people than on means-tested programs that redistribute disproportionately to Black and Hispanic people. For 2020, the federal government spent over twice as much on just Social Security and Medicare as it did on means-tested programs, including Medicaid. The same pattern of overall redistribution to White people appears in the other side of fiscal policy—taxation. In Chapter 3, we saw how the US tax code gives preferential treatment to investment income, which disproportionately flows to White

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taxpayers who, not coincidentally, own most of the wealth in the United States, thanks in part to affirmative action for White people. Any tax policies that disadvantage lowerincome Americans (those that are directly or indirectly regressive) also disadvantage people of color, who tend to fall into lower-income categories. For example, as we saw earlier, the regressive payroll tax takes a higher portion of income from lower-income groups to fund Social Security and Medicare. The net effect is a lower estimated benefit-to-tax ratio of Black (approximately 0.8) and Hispanic people (approximately 0.6) to White people (approximately 1.2). This calculation compares the ratio of Social Security benefits received to taxes paid by members of a particular racial and ethnic group at a point in time. It measures the transfers that occur in a particular year from current workers to current beneficiaries of each racial or ethnic group. Lower rates of homeownership among people of color mean they have less access to the mortgage-interest deduction. Lower tax rates on capital gains disproportionately favor White taxpayers who are considerably more likely than Black or Hispanic taxpayers to earn investment income. White workers claim more deductions for retirement contributions in programs like 401(k) or 403(b) than do people of color, who are less likely to work jobs that provide retirement benefits.15 The racialized impact of the December 2017 tax cuts further illustrates affirmative action for White people as found in current fiscal policy. The cut on corporate taxes from a top rate of 35 percent down to 21 percent disproportionately benefited affluent White people who own most stock in corporations. Those corporations benefited more by using their tax cuts to fund massive stock buybacks designed to drive up the value of company stock, thus benefiting those same affluent White shareholders. Roughly half of Americans own no stock, and that group disproportionately includes people of color. United for a Fair Economy estimated that approximately 24 percent of the tax cuts benefited White households in the top 1 percent, and nearly three-quarters (72 percent) of the total tax cuts benefited the top 20 percent of income earners in the United States. Only 14 percent of the tax cuts benefited the poorest 60 percent of all households, a group that includes a disproportionate share of households of color.16

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Affirmative Action in Education Contemporary proponents of affirmative action view it as a potential antidote for racial and gender disadvantages in education. Blowback is fierce from opponents who insist that the myth of meritocracy is no myth. The debate distracts attention from the reality: that White people in the United States have always benefited from affirmative action policies in education, and they still do. In The Souls of Black Folk (1903), W. E. B. DuBois relates a telling story from Reconstruction America. Against long odds, a Black educator established a small schoolhouse in New Hampshire. His White neighbors, unwilling to tolerate the prospect of educated Black people, took matters directly in hand: they hitched the small schoolhouse to ninety yoke of oxen and dragged it into a nearby swamp.17 Today, policymakers unwilling to adequately fund innercity schools still metaphorically drag them into a swamp. One of the most consistent and dependable paths to economic and financial success in the United States is education. A good education, from K–12 and beyond, pays off with relative dependability in decent jobs with income levels sufficient to build a comfortable life. Conversely, a bad education relatively dependably results in economic and financial disadvantages that define adulthood and accumulate steadily as measured in lifetime earnings and wealth. So one would think that providing an adequate education for everyone would be a high priority of policymakers. Their funding priorities often suggest otherwise. Because Black and Hispanic families are more likely than White families to live in poverty, they are more likely to live in inner cities with troubled and failing schools. Predictably, as one report concludes, “American public schools remain largely separate and unequal—with profound consequences for students, especially students of color.”18 One 2016 study estimated that schools serving predominately students of color overall received $23 billion less in funding than schools serving predominately White students. On average, the report concluded, school districts defined as poor, with predominately students of color, receive approximately 19

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percent less per student than affluent White school districts— about $2,600.19 These data only measure government funding. The disparity is compounded by other factors, such as the greater ability of families living in affluent school districts to raise additional funds through informal means like volunteer PTA campaigns. For instance, the state of Ohio relies entirely on local property taxes to fund local education, and it does not require redistribution from rich to poor school districts. On three separate occasions, the Ohio Supreme Court has declared the K– 12 school-funding formula unconstitutional for failure to distribute access equitably. Each time, the state legislature has simply ignored the ruling. This creates marked inequities in public school funding, with well-heeled suburbs and exurbs spending upward of $30,000 per pupil, while inner cities spend half or a third that much. Results are predictable: innercity school systems such as the Cleveland public school system annually face the dismal, demoralizing fate of grading out at “failing.” Many of its K–12 students don’t make it to graduation, and many of those who do are underprepared for college, as measured in standardized tests and higher collegedropout rates. The quality of K–12 education impacts students’ prospects for postsecondary education. A well-funded, high-quality K– 12 education increases the likelihood of scoring well on standardized entrance exams; a poorly funded, low-quality K–12 education does the opposite. The unfortunate result is that SAT and ACT scores correlate closely to family income. And graduates of inner-city schools that enroll disproportionate numbers of Black and Hispanic students often arrive at college underprepared compared to their peers from suburban and exurban school districts. Various mechanisms for granting privileged and racialized access through side doors to college admissions, including legacy admits, favoring applicants whose parent(s) contributed heavily, and bogus recruiting for White-dominant sports such as water polo, rowing, and lacrosse, compound these inequities.20 In the United States, we invest more in educational opportunities for our White children than for our children of color. Affirmative action for White people begins early in life.

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Environmental and Geographical Apartheid Where you live partially determines how you live. And where you live in the United States is still highly racialized. Private and government dollars flow away from communities of color and into White communities. Many people of color are highly segregated in urban areas, often in economically disadvantaged locations, while White people disproportionately populate affluent suburbs, exurbs, and gentrified urban neighborhoods. This is tied to generations of racist color coding, perpetuated by both overt prejudice and systemic factors. At least the former, overt prejudice, is easily recognized for what it is and readily condemned. The latter, judging from its persistence and the ongoing failure to adequately address it, not so much. Well into the twentieth century, people of color were simply not allowed to live in neighborhoods considered White. Real estate agents notoriously steered potential Black homeowners away from White neighborhoods and White househunters away from Black neighborhoods. Even if they had wanted to, people of color were not allowed to move into White neighborhoods. Any attempt to do so was met with violence and intimidation. In the 1950s and 1960s, the problem of segregation began to take a less overtly racialized form, but it was no less consequential. Enabled in part by the massive investment in a freeway system during the Dwight Eisenhower administration, White people began to vacate core cities in favor of suburbs and exurbs. Some were motivated by prejudice against people of color. But many were simply seeking better schools for their children, secure property values, jobs, and safety. Their access to these markers of a comfortable life was subsidized by government outlays for highways, sewer systems, public utilities, and other infrastructure that could have shored up inner cities instead. In effect, these commitments of public funds for urban sprawl were a form of affirmative action for White people moving outward. As we saw in Chapter 6, inner-city neighborhoods with predominantly Black and Hispanic residents were redlined, deemed

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high risk for loan default. The resulting shortage of affordable credit among communities of color undermined home ownership and the ability to invest in homes and businesses and diminished overall prospects for maintenance and development. Although Congress outlawed redlining in the Community Reinvestment Act of 1977, it still occurs, albeit informally and without acknowledgment. The result remains the same: innercity neighborhoods, populated disproportionately by people of color, are disadvantaged in access to credit needed to maintain and improve homes, businesses, community institutions, schools, and entire neighborhoods.21 Forms of environmental distress similarly illustrate racialized inequities. Many inner-city neighborhoods contain brownfields, former commercial or industrial sites with dangerous residues of contamination. The former owners bailed when their business relocated or dissolved, leaving the cost of cleanup to the city. Many of these brownfields remain unused and undeveloped because of steep cleanup costs. In short, owners, almost all of them White, pocketed the money made by contaminating the site, then split, leaving the cleanup costs to taxpayers and neighbors. This outcome is further racialized as high cleanup costs thwart inner-city development, and people of color disproportionately bear the ongoing costs in terms of quality of life and stymied development. As one study concluded, race is the single most predictive factor for siting toxic waste dumps and for ensuring that people of color live with more pollution overall than White people. According to the Environmental Protection Agency, in 2018, in forty-six states people of color lived with more air pollution than White people.22 The same basic process of (dis)advantage occurs with the siting of freeways, which generally follows a standard formula: lay the freeway through an inner-city neighborhood, splitting it and cutting it off, leaving residents with pollution from automobiles, freeway ugliness, and freeway barriers. Policymakers typically cite cost as their rationale: put the freeway where it will cost the least to condemn homes and businesses that will have to be demolished, and this usually means neighborhoods populated by people of color. These freeways have sped up the process of White flight. They make it feasible for companies to move jobs to the suburbs and for White people

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to commute into the city for work and recreation from their suburban and exurban homes. People of color pay for this in jobs lost to White people who live in suburbs and in their quality of life. Some community development funds that target lowincome urban neighborhoods have been deployed effectively, especially Community Development Block Grants and various forms of housing assistance. But reflecting a long-standing reluctance by policymakers to adequately address the problem, the funding tends to be too little in proportion to the need. Reflecting a new era of undisguised racism and an association of the word urban with “Black,” Trump’s 2020 budget proposed eliminating most community development funding. The result is that many inner cities, populated disproportionately by people of color, are starved for funds badly needed for urban renewal and development. Abandoned homes and businesses, boarded up windows, crime, and pollution define the everyday experience for millions of inner-city residents. In city after city, this story has played out over the last century. Affluent White people live in the suburbs, indirectly subsidized by people of color living in inner cities. Suburbanites drive through inner-city neighborhoods, adding noise, visual, and air pollution to the urban environment. Recent trends in housing redevelopment that target young, affluent urban professionals partly reverse the flow of dollars from urban to suburban, but often by reproducing the same racialized segregation. Typically, these new developments attract young, White, affluent urban professionals who have the financial means to buy into the new developments and are positioned by their affluence to take advantage of the tax abatements and discounted mortgage rates that often accompany these urban developments. Of course, there have been many successful efforts by communities of color (and other core city residents) to resist the tide, to develop, and to thrive. But their efforts tend to be underfunded relative to those of their suburban and exurban counterparts, undermined in part by the declining tax base in core cities. Risk factors associated with climate change exacerbate the racialized character of place. White people are overall better positioned to deflect some of the consequences of climate change

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by virtue of their stronger economic and financial positions. People of color are more likely to bear the brunt, both globally and within the United States. For example, rising sea levels plus frequent storm surges are already flooding out coastal residents. Overall, White people are better positioned to deal with the problem than people of color. Federal Emergency Management Agency (FEMA) payouts and buyouts disproportionately subsidize rebuilding efforts that largely favor White individuals and communities in areas such as barrier islands, former wetlands, and fragile coastlines, where affluent White people often have their vacation homes. People of color who live in relatively marginalized coastal communities have lost their homes and sometimes entire neighborhoods and have recouped less in payouts and buyouts. The poorest people who are the least responsible for the problem (their carbon footprint is lower) are the first to have to flee or relocate. Tellingly, Black New Orleans residents were three times more likely than White residents to be flooded out by Hurricane Katrina. Ten years later, a majority of White New Orleans residents said they were better off after the hurricane, while the city’s Black residents said the opposite.23 These starkly different assessments reflect the racialized flow of FEMA and other funds into rebuilding neighborhoods. Perversely, the most generous subsidies often flow to the riskiest properties, sometimes in truly strange forms such as pumping sand into the front yards of millionaires in an attempt to preserve or reclaim their private beachfronts. One net result is the shifting of risk from private owners and developers to taxpayers, ensuring the redistribution of dollars from taxpayers to affluent White people.

Criminal Injustice System The contemporary criminal injustice system is so badly racialized that it has earned designation as the “new Jim Crow.”24 People of color bear the heaviest costs. The system adds to some White incomes while subtracting from Black and Hispanic incomes.

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The United States incarcerates its residents at a higher rate than any other country in the world, and it incarcerates its Black residents at a higher rate than its White residents. Taxpayers pay a lot of money to maintain this racialized system. According to one 2020 study, incarceration costs taxpayers an average of $33,274 per prisoner per year for state prisons and $36,299 for federal prisons.25 People of color are overincarcerated in proportion to their population and compared to White people. One in twelve Black men is in jail, compared to one in eighty-seven White men. More Black men without a high school diploma or GED are incarcerated than are employed. One in nine Black children has an incarcerated parent, increasing their risk of running into trouble at school and home or of entering the foster care system.26 People of color are overincarcerated in part because they are overpoliced, leading to higher rates of traffic stops, more surveillance, and more instances of “driving while Black” (DWB) or “walking while Black.” Some cities, including Ferguson, Missouri, site of an early Black Lives Matter protest, lean heavily on revenue derived from overpolicing their Black residents. People of color are overincarcerated also in part because of sentencing disparities for similar offenses. Black and Hispanic offenders draw longer sentences than White counterparts. Mandatory minimum sentencing also helps swell prison populations. The so-called war on crime, declared by Lydon Johnson in 1965, and Richard Nixon’s declaration in 1971 of a war on drugs, echoed subsequently by Ronald Reagan’s 1982 war on drugs and Bill Clinton’s 1994 war on drugs, led to the ramping up of drug enforcement. This in turn led to the imprisonment of massive numbers of offenders on marijuana offenses, including simple possession. The United States spends over $47 billion annually on the war on drugs, arresting over 1.5 million on drug violations, including 1.4 million for simple possession and approximately 600,000 for marijuana law violations. Nearly half of those arrested are Black or Hispanic, well out of proportion to their overall share of the population at 32 percent.27 The wars on drugs and crime both accelerated and exacerbated racial injustice by increasing the policing of

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inner cities and the punitive nature of sentencing, with sentencing disparities favoring White convicts. The system drains resources from people of color and redirects at least some of them to White people. The draining occurs in earnings reductions and costs to inner-city families and communities. Most obviously, anyone sitting in prison will not be drawing an income (aside from the ridiculously low, nominal wages earned by some prisoners), and most will not be getting the education they need to succeed in the job market. Released felons also face dismal job prospects, as most employers are reluctant to hire them. People of color are more likely than White people to suffer unemployment after release from prison. 28 In many states, felons also suffer disenfranchisement. Private prisons define a new, emerging landscape of incarceration. In 2016, nearly 10 percent of the entire US prison population was housed in private prisons, and 19 percent of federal prisoners were in private prisons. Additionally, some 81 percent of US Immigration and Customs Enforcement’s “detained” immigrant population was held in private prisons in 2019.29 Private prison owners benefit from inmate labor, paying pitifully low wages of dollar-a-day proportions. Some prisons require their prisoners to cook, clean, or perform other duties whether they like the dollar-a-day wages or not. The prison owners and senior management pocket the savings. The criminal justice system also drains dollars from poor communities through the practice of civil asset forfeiture in which police seize assets at the point of detainment or arrest. This practice occurs even if the asset (most typically cash or a car) was not involved in a crime. In fact, 80 percent of people who lose assets through forfeiture are never charged with a crime. One study estimated in 2014 that approximately $4.5 billion per year is taken at the federal level, with billions more taken at the state level, from the poorest members of society. In Philadelphia, 71 percent of asset forfeiture unaccompanied by a conviction confiscated property from African Americans, who constitute only 44 percent of the total population. Chicago police seized $150 million through asset forfeiture over a five-year period, fre-

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quently targeting low-income neighborhoods on the South and West Sides. Over the ten-year period from 2005 to 2015, a total of approximately $319 million was seized through asset forfeiture. 30 Police departments often target poorer areas for sources of revenue through traffic stops, often based on bogus “indicators” such as DWB, and forfeiture. Police departments and the cities they serve become addicted to the war on drugs, using forfeiture to increase their incomes. A survey of 1,400 municipalities showed that 60 percent viewed forfeiture and fines as essential components of their budgets.31 The practice encourages policing for profit rather than justice and leads to distorted levels of policing in proportion to population. It unjustly targets people and communities of color, from which siphoned dollars flow into police and city budgets.

Start by Admitting the Problem Racial (dis)advantage is a defining characteristic of US history and identity. Affirmative action for White people is not dead and buried. The various forms of affirmative action accumulate and reinforce one another. One generation’s advantages and disadvantages are bequeathed to the next. The present carries forward the past. Economic success in one generation eases subsequent generations’ way toward quality education, employment in fields that pay well, and safe, secure homes in thriving communities. Economic marginalization in one generation increases the risk for subsequent generations of educational underattainment, unemployment, crime, and incarceration. These are highly racialized patterns of advantage and disadvantage. In short, they are the very definition of racism. Not so long ago, prominent, respected defenders of White privilege employed explicitly racist language to make their meaning clear. In 1957, William F. Buckley argued in his essay “Why the South Must Prevail” that White Americans are “entitled” to their privilege because they belong to “the advanced race.”32

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Most deniers and apologists for White privilege no longer use explicitly racist language. Instead they revert to coded evasions embedded in myths of meritocracy and colorblindness. As with so many other problems in the United States, solutions are not hard to identify. Start with reparations. Provide descendants of slaves the contemporary equivalent of forty acres and a mule. Return all land within reservation boundaries to Native people. Increase funding for Native communities as guaranteed long ago in treaties. Increase support for policies that benefit marginalized people in general, especially people of color. Create affirmative action policies that target low-income and underserved communities, especially communities of color. Enact fiscal policies that redistribute from top to bottom. Redistribute educational resources to equalize access to quality education at all levels. Turn brownfields into community assets for residence and development by low-income people and people of color. Invest in inner cities, targeting lowincome communities and communities of color. Many antiracism policies are exactly the same policies that best challenge the trickle-up economy. Many policies aimed at overcoming racialized disadvantages adversely affecting people of color will at the same time overcome disadvantages affecting lower- and middle-income White Americans. These include policies to ensure living wages and secure jobs with affordable benefits, to create a more robust social safety net and job-creation programs, to provide quality education, and much more. What’s lacking is not a clear path forward but the political will to take that path. It requires that White people who benefit from a racist political economy recognize and acknowledge their privilege. Then they must yield some of that privilege or extend it to all Americans. And this may require sacrifice and inconvenience.

Notes 1. Issues of terminology and capitalization surrounding race and ethnicity have drawn necessary scrutiny in recent years, and the discussion continues to evolve. I will attempt to adhere to the most respectful usage,

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while recognizing that some issues have no perfect solution. For example, while “people of color” is preferable to “non-White” or “colored,” it erases profound differences. Similarly, both “Native” and “Indigenous” erase the vast diversity among Native people in the United States. 2. Valerie Wilson, “Racial Disparities in Income and Poverty Remain Largely Unchanged amid Strong Income Growth in 2019,” Economic Policy Institute, September 16, 2020, www.epi.org/blog/racial-disparities-in-income -and-poverty-remain-largely-unchanged-amid-strong-income-growth-in -2019; Neil Bhutta et al., “Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances,” FEDS Notes, Board of Governors of the Federal Reserve System, September 28, 2020, https://doi.org/10.17016/2380 -7172.2797; “Poverty Rate by Race/Ethnicity,” Kaiser Family Foundation, www.kff.org/other/state-indicator/poverty-rate-by-raceethnicity. 3. Clarence J. Munford, Race and Reparations: A Black Perspective for the 21st Century (Trenton, NJ: Africa World Press, 1996), 428–429. See also Thomas Craemer, “Estimating Slavery Reparations: Present Value Comparisons of Historical Multigenerational Reparations Policies,” Social Science Quarterly 96, no. 2 (June 2015): 639–655. The estimates depend on factors such as what is defined as labor, who is identified as performing that labor, the number of calculated labor hours, the rate of pay per hour, the rate of inflation, and the rate of interest. 4. W. E. B. DuBois’s The Souls of Black Folks (New York: Vintage Books, 1990 [1903]), remains the best account of Reconstruction’s failure. DuBois noted that only 6 percent of Black people attained some form of land ownership in the second half of the nineteenth century in the United States (118). 5. Isabel Sawhill and Christopher Pulliam, “Six Facts About Wealth in the US,” Brookings Institution, June 25, 2019, www.brookings.edu/blog/up -front/2019/06/25/six-facts-about-wealth-in-the-united-states. On homesteading and land giveaways in US history, see Greg Bradsher, “How the West Was Settled,” Prologue (winter 2012): 26–35, www.archives.gov/files /publications/prologue/2012/winter/homestead.pdf. 6. Roxanne Dunbar-Ortiz, An Indigenous Peoples’ History of the United States (Boston: Beacon Press, 2014), 94. 7. See Meizhu Lui et al., “Land Rich, Dirt Poor: Challenges to Asset Building in Native America,” in The Color of Wealth: The Story Behind the US Racial Wealth Divide (New York: The New Press, 2006), 29–72. 8. William D. Larson, “New Estimates of Value of Land in the United States,” Federal Housing Finance Agency, April 3, 2015, https://www.bea .gov/system/files/papers/WP2015-3.pdf. 9. Jess Gilbert, Spencer Wood, and Gwen Sharp, “Who Owns the Land? Agricultural Land Ownership by Race/Ethnicity,” Rural America 17, no. 4 (2002): 55. See also Antonio Moore, “Who Owns Almost All America’s Land?” Institute for Policy Studies, February 15, 2016, https://inequality .org/research/owns-land, whose more recent data are even more racially lopsided in favor of White agricultural landowners. 10. “45 Important Welfare Statistics for 2019,” Lexington Law, December 31, 2018, www.lexingtonlaw.com/blog/finance/welfare-statistics.html. See also “Distribution of the Nonelderly with Medicaid by Race/Ethnicity,” Kaiser Family Foundation, 2019, www.kff.org/medicaid/state-indicator /distribution-by-raceethnicity. 11. Gayle Thompson, “Blacks and Social Security Benefits: Trends, 1960– 1973,” Social Security Administration Bulletin, April 1975, 35, www.ssa.gov

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/policy/docs/ssb/v38n4/v38n4p30.pdf; Mimi Abram-ovitz, “Everyone Is Still on Welfare: The Role of Redistribution in Social Policy,” Social Work 46, no. 4 (October 2001): 300; Patricia Martin and John Murphy, “African Americans: Description of Social Security and Supplemental Security Income Participation and Benefit Levels,” Social Security Administration, January 2014, www.ssa.gov/policy/docs/rsnotes/rsn2014-01.html. In 2014, the Social Security Administration stopped collecting data on race and ethnicity, making it difficult to calculate more recent information about Supplemental Security Income beneficiaries and distribution. 12. C. Eugene Steuerle, Karen E. Smith, and Caleb Quakenbush, “Has Social Security Redistributed to Whites from People of Color?” Program on Retirement Policy Brief 38, Urban Institute, November 2013, www.urban.org /sites/default/files/alfresco/publication-pdfs/412943-Has-Social-Security -Redistributed-to-Whites-from-People-of-Color-.PDF. 13. Austin Nichols and Margaret Simms, “Racial and Ethnic Differences in Receipt of Unemployment Insurance Benefits During the Great Recession,” Unemployment and Recovery Project Brief 4, Urban Institute, June 2012, www.urban.org/sites/default/files/publication/25541/412596-Racial -and-Ethnic-Differences-in-Receipt-of-Unemployment-Insurance-Benefits -During-the-Great-Recession.PDF. 14. Jennifer Liu, “Just 13% of Black People out of Work Are Getting Unemployment Benefits During the Pandemic,” CNBC, September 1, 2020, www.cnbc.com/2020/09/01/just-13percent-of-black-people-out-of-work -get-pandemic-unemployment-benefits.html. 15. “Racial Disparities and the Income Tax System,” Tax Policy Center, January 30, 2020, https://apps.urban.org/features/race-and-taxes. For an older, but still helpful, analysis, see Steuerle, Smith, and Quakenbush, “Has Social Security Redistributed to Whites from People of Color?” 4. The authors projected that the racial disparity in the benefit-to-tax ratio of the Social Security system will hold steady for at least the next two decades. 16. “The Impact of the 2017 Tax Law on Racial and Economic Inequality,” in State of the Dream 2019: The Perfect Storm, United for a Fair Economy, January 21, 2019, https://d3n8a8pro7vhmx.cloudfront.net/ufe/pages/4123 /attachments/original/1553193583/V8_State_of_the_Dream_2019-_The _Perfect_Storm.pdf, 18, 20. 17. DuBois, The Souls of Black Folk, 157. 18. Keith Meatto, “Still Separate, Still Unequal,” New York Times, May 2, 2019. See also Cristobal de Brey, “Status and Trends in the Education of Racial and Ethnic Groups 2018,” National Center for Education Statistics, US Department of Education, February 2019, https://nces.ed.gov/pubs2019 /2019038.pdf. 19. Lauren Camera, “White Students Get More K–12 Funding Than Students of Color,” US News & World Report, February 26, 2019, www.usnews .com/news/education-news/articles/2019-02-26/white-students-get-more -k-12-funding-than-students-of-color-report. 20. On recent college admissions scandals involving outright bribes and other illegal side doors, see Melissa Korn and Jennifer Levitz, Unacceptable: Privilege, Deceit and the Making of the College Admissions Scandal (New York: Portfolio/Penguin, 2020); and Jeffrey Selingo, Who Gets In and Why: A Year Inside College Admissions (New York: Scribner, 2020). 21. For a detailed accounting of the role of government policy in segregating the United States, see Richard Rothstein, The Color of Law: A Forgot-

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ten History of How Our Government Segregated America (New York: Liveright Publishing Corporation, 2017). 22. Emily Raboteau, “Lessons in Survival,” New York Review of Books, November 21, 2019, 13–14. See also Klara Zwicki, Michael Ash, and James Boyce, “Mapping Environmental Injustice,” Current Economic Issues, ed. James Cypher et al., 23rd ed. (Boston: Economic Affairs Bureau, 2019), 106–109. 23. See Gary Rivlin, “White New Orleans Has Recovered from Hurricane Katrina. Black New Orleans Has Not.” TalkPoverty.org, August 29, 2016, https://talkpoverty.org/2016/08/29/White-new-orleans-recovered-hurricane -katrina-Black-new-orleans-not. See also Abby Phillip, “White People in New Orleans Say They’re Better Off After Katrina. Black People Don’t,” Washington Post, August 24, 2015, www.washingtonpost.com/news/post -nation/wp/2015/08/24/White-people-in-new-orleans-say-theyre-better-off -after-katrina-Black-people-dont; and State of the Dream 2019: The Perfect Storm. 24. Michelle Alexander, The New Jim Crow: Mass Incarceration in the Age of Colorblindness (New York: The New Press, 2010). 25. See Teo Spengler, “How Much Do Prisons Cost Taxpayers?” GOBanking Rates, July 9, 2020, www.gobankingrates.com/taxes/filing/wont-believe -much-prison-inmates-costing-year, for reporting on recent data from the Prison Policy Initiative, www.prisonpolicy.org/research/economics_of_incarceration. 26. “How Private Prison Companies Increase Recidivism,” In the Public Interest, June 2016, www.inthepublicinterest.org/wp-content/uploads/ITPI -Recidivism-ResearchBrief-June2016.pdf. 27. “Drug War Statistics,” Drug Policy Alliance, 2018, www.drugpolicy .org/issues/drug-war-statistics. 28. According to one estimate published in 2018, the unemployment rate (27.3 percent) for the entire formerly incarcerated population is approximately five times that of the general population (5.2 percent). Being Black or Hispanic “reduces their employment chances even more.” Lucius Couloute and Daniel Kopf, “Out of Prison and Out of Work: Unemployment Among Formerly Incarcerated People,” Prison Policy Initiative, July 2018, www .prisonpolicy.org/reports/outofwork.html. 29. “How Private Prison Companies Increase Recidivism,” 2016; “Immigration Detention 101,” Detention Watch Network, www.detentionwatchnetwork .org/issues/detention-101. 30. C. J. Ciaramella, “Poor Neighborhoods Hit Hardest by Asset Forfeiture in Chicago, Data Shows,” Reason, June 13, 2017, https://reason.com /2017/06/13/poor-neighborhoods-hit-hardest-by-asset. For a national analysis, see Dick Carpenter II et al., Policing for Profit: The Abuse of Civil Asset Forfeiture, 2nd ed. (Arlington, VA: Institute for Justice, 2015). 31. Mike Maciag, “Addicted to Fines,” Governing Magazine, September 2019, www.governing.com/topics/finance/gov-addicted-to-fines.html. 32. William F. Buckley, “Why the South Must Prevail,” National Review, August 24, 1957.

8 Markets and Power: The Invisible Fist

Throughout this book, I have focused primarily on government as a mechanism of redistribution, emphasizing the shift over the last forty years toward policies that increasingly drive income and wealth upward. In this chapter, I look at other dominant distributive mechanisms: capitalist markets. One of the stated goals of some public officials during the last half century has been to downsize government and liberate the economy from government intervention. Proponents of this strategy claim multiple advantages, among them an unleashing of entrepreneurial energies, greater freedom for individuals and corporations, increased productivity and economic growth, and greater distributive justice in which everyone is more likely to get what they deserve. At the heart of these claims lies the belief that, in the words of Ronald Reagan in his first inaugural address in 1981, “government is not the solution to our problem, government is the problem.” Reflecting growing commitment to neoliberal political economy, markets would be the solution. Orthodox economists naturalize markets as benign transhistorical and transcultural mechanisms for sorting human choice and satisfying human wants. One version is captured in Adam Smith’s famous invisible-hand metaphor. Heterodox

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political economists have taken exception to this idealized view of markets, focusing instead on markets as human artifacts that structure relations of power.1 They recognize that, however useful as mechanisms of choice and of satisfaction of wants, economic concentrations of power serve the purpose of domination as effectively as political concentrations of power in governments. Turning all questions of production and distribution over to the market, as some market fundamentalists advocate, simply ensures domination by powerful economic actors who use their power to advance their own interests. Removing government diminishes the possibility of effectively countering this domination in order to achieve the production of public goods and a more just distribution of income and wealth. If markets enrich some individuals, they impoverish others. Adam Smith recognized this, arguing that one person’s riches “supposes the indigence of” at least 500 others.2 Powerinfused market exchanges ensure that one person’s gain often requires harm to others. Government action is needed to overcome this market result. Markets are systems of power that, like governments, can (re)distribute resources upward or downward. So-called free markets, especially as abetted by neoliberal governments through both hands-off and proactive policy, generally (re)distribute upward.

Free Markets Are Not Free What is a free market supposedly free of? Government intervention, presumably. But that only begs the question of why government intervention is viewed as a bad thing. Because governments coerce. By implication, markets do not themselves coerce. This formula is evident in the work of libertarian economist Milton Friedman. In Capitalism and Freedom (1962), Friedman argued that “competitive capitalism,” which he defined as “the organization of the bulk of economic activity through private enterprise operating in a free market,” is both “a system of economic freedom and a necessary condition for polit-

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ical freedom.” According to Friedman, competitive capitalism is a necessary condition for freedom because it “separates economic power from political power and in this way enables the one to offset the other.” Governments “substitute coercion for voluntary co-operation” and thus pose a threat to freedom.3 Friedman defines freedom as the “absence of coercion.” So government, which in his formulation is coercive by definition, reduces freedom, while markets allow its expression. People participate, or not, in markets based on free, uncoerced choice. Workers participate freely in labor markets because they have the power of exit: they can leave if they do not like the terms of the labor contract, and this guarantees their freedom. An employee is thus “protected from coercion by the employer because of other employers for whom he can work.”4 Similarly, people can choose freely and voluntarily to participate or not in consumer markets, and they can select among various consumer options without being coerced. But freedom requires viable options from which to choose. Friedman obliquely acknowledges this, arguing that exchange via a market is voluntary “only when nearly equivalent alternatives exist.”5 Workers are often coerced by a lack of viable alternatives. In an economy defined by an increasing profusion of minimum wage jobs, workers do not have viable alternatives for employment. They must either work at minimum wage or try to get by without a job. If you hold an advanced degree, but there are no jobs in your field, in what reasonably meaningful sense do you freely choose to take that job driving for Uber or running a cash register? You are in effect coerced into accepting a position of underemployment, not directly by an individual manager or an intrusive government, but by systemic market forces beyond the control of any one individual.6 In a market economy, whether or not a choice is viable depends very much on how much money a person can bring to the market. A multimillionaire has many more viable options than an unemployed person living on unemployment checks. While the multimillionaire can viably choose to buy a second home, a fine yacht, and a Caribbean vacation, the unemployed person’s viable options may be between starving or working day labor at below-minimum wages; between sleeping under a bridge or squatting in an abandoned building; or between dining at a local soup kitchen or dumpster diving. Similarly,

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the multimillionaire can opt out of the labor market entirely, choosing instead to live indefinitely off investments. At best, for those with little or no money, choices are reduced to a few, often unattractive options. At worst, the lack of money makes participation in markets impossible. Millions starve because they do not have enough money to participate as consumers in a food market. And millions of marginalized Americans still lack access to adequate health care in the United States because it is run through a system of markets.7 Worse, markets often eliminate viable options. Relocating jobs to China in response to global market conditions eliminates options for employment in the United States, undermining genuine freedom of choice for American workers. In dense urban environments, developers sometimes destroy affordable housing options for marginalized residents who cannot afford the upscale condos and entertainment venues that developers erect. US consumption of beef encourages farmers in Costa Rica to raise more cows, diverting production into areas that service meat production while eliminating plant-based sources of protein actually consumed by billions of people at more affordable prices. Stock market shorting and hostile takeovers sometimes result in shredded companies and massive layoffs that eliminate viable options for employment. Friedman argues that markets offer all of us “full co-operation on equal terms to all.”8 By “equal terms” he means that the rules of property ownership and control apply equally to all of us and that one person’s dollar is as good as another’s. But some people own no property save the clothes on their back, so abstract property rights do them little good. In practice, this means that people who do own and control property exert more influence and coercion through markets, and they enjoy greater freedom. In general, the more property you own or control, the more actual power and freedom you possess. By starting with the presumption that markets are the realm of freedom while governments are the realm of coercion,9 Friedman is unable to appreciate the power wielded through markets and the impact on human freedom. Each time markets limit a person’s choices, freedom is diminished. A more empirically and ethically defensible position would be that power comes in many forms, both observable and unobservable, and all power is potentially coercive.

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Where does power reside? Certainly in the political institutions that Friedman seeks to limit, including positions of political authority, political office, and political control over rules and resources. But this only begins to enumerate the many forms power can take and the many social relationships in which power is embedded. Economic forms of power include, most obviously, money and control over resources. People who have access to these are in better positions to exert their will, to do things they want, to prevail in conflict, and to negotiate favorable terms. In short, they have access to more viable choices and therefore more freedom. The more money you have, the better positioned you are to take advantage of market conditions and opportunities. With deep enough pockets, you can shape an entire market. More to the point, you can shape the lives of millions of other people. The exercise of economic power is sometimes clearly visible—for instance, when Walmart drives its small-town competitors out of business. Or when McDonald’s cuts prices to destroy the hometown Helen’s Diner next door. When a software company buys out its competition to maintain control over pricing. When an investor shorts a market. When a manufacturer relocates abroad. But the exercise of economic power is sometimes less visible. Advertisers create, manipulate, and distort human desire. Mainstream economists join Madison Avenue executives in simply denying or defending this endemic feature of modern capitalist economies on the basis of so-called consumer sovereignty. This foundational assumption of mainstream economic theory holds that people are autonomous choosers whose preferences are reflected in their market behavior. Advertisers simply provide information to help choosers rationally sort out options. Economist John Kenneth Galbraith and many others have responded that producer sovereignty is a more accurate characterization: producers create, manipulate, and distort consumer choices in order to sell more products and services.10 How free are we if powerful market forces outside our control or even awareness shape our preferences, our desires, and ultimately our identities? Pulling the government out of the economy to allegedly maximize freedom simply clears the field for the unchecked

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exercise of power by economic actors. By design in a capitalist political economy, these other forms are less subject to democratic control. For Friedman, this is apparently a virtue, a desirable effect of downsizing government. Whatever the advisability of downsizing government, a socalled free market in an advanced capitalist economy cannot under most circumstances function absent certain forms of government power. Markets generally require enforcement of property rights and contracts and protection from theft and injury. Most markets also require infrastructure, such as roads and telecommunications networks, developed and paid for with public funds. Government-funded education and research supports technological innovation that often translates into private profit. The granting by the US Supreme Court of corporate personhood in Santa Clara County v. Southern Pacific Railroad Co. (1866) bestowed on corporations many of the same rights as enjoyed by humans, including the right to enter into contracts, the displacement of legal liability for wrongdoing from owners onto the corporation itself (sometimes encouraging reckless and criminal actions by individuals who can shield themselves from the repercussions), and the right to unlimited spending in elections. If corporations are people, we should ask, with Geoff Schneider, “What kind of people are they?” Schneider concludes that in their myopic focus on profit, corporations exhibit psychopathic traits as described by psychiatrists.11 All markets are systems of power that, absent corrective political intervention, tend to drive income and wealth upward. Some individuals and corporations enjoy more power than others, and they use that power to increase their income and wealth, often at the expense of others. This is seen in circumstances of market concentration.

Market Concentration You do not have to be a critic of capitalism to see the distorting consequences of concentrated economic power. As Chris Schelling demonstrates:

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With fewer and fewer competitors and increasing barriers to entry, businesses can exert their power over customers and vendors. . . . As a result of this unimpeded industry concentration and the rise of market power, corporate profit margins have surged to all-time highs. . . . Labor as a share of profits has gotten squeezed.12

This testimony from a self-described fan of capitalism encapsulates the problem of market concentration, the power it allots to corporate owners, and the inevitable result in the form of upward redistribution. Yet it is incomplete as a criticism of market concentration and its consequences.13 Most sectors of the economy today are in situations of oligopoly rather than monopoly, dominated by a few large firms that control most of the market share within that industry. The consequences are largely the same. The steel, aluminum, film, television, cell phone, gas, airline, fast-food, prepared-food, soft drink, footwear, athletic-wear, and even retail industries in some areas,14 as well as many more sectors of the US economy, are dominated by several large companies. Today, there are only one-fourth as many banks as there were fifty years ago, as local and regional banks have been either absorbed or driven out of business by national franchise banks. Thirty years ago, the largest five banks controlled approximately 10 percent of the banking market. Today, those five banks control over half of all banking assets.15 In 1983, the US media universe was relatively dispersed among approximately fifty corporations controlling magazines, books, music, news feeds, newspapers, movies, radio, and television. By 1992 that number had dropped to twentyfive; by 2000, to six. In 2017, five media corporations dominated: Time Warner, Disney, News Corp, Bertelsmann of Germany, and Viacom. In 2020, six media giants controlled 90 percent of what consumers watched, read, and listened to: AT&T (which bought out Time Warner), CBS, Comcast, Disney, News Corp, and Viacom. These giant, sprawling corporations, their owners, and their managers decide what information and disinformation is aired through their media empires. News Corp’s Fox News alone has defined some of the most noteworthy and damaging changes in US politics in the last two decades. The network is often credited with

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making Donald Trump’s election to the US presidency possible in 2016.16 Of course, the proliferation of online sources of news and information has to some degree counteracted growing media concentration. Many independently owned major news organizations, in addition to the big five, continue to operate. These include, for example, the New York Times, owned by the New York Times Corporation; the Washington Post, owned by the Washington Post Company; the Chicago Tribune and Los Angeles Times, both owned by the Tribune Company; and Hearst Publications, which owns a dozen newspapers, plus magazines, television stations, and cable and interactive media. The Sinclair Broadcast Group, operator of the second-largest number of local television stations in the United States, has staked out a reputation for its conservative programming. The Herfindahl-Hirschman Index gauges the level of competition within an industry by measuring the size of a firm compared to the industry overall. The higher the number, the greater the concentration and the lower the level of competition. This metric has risen substantially in over three-fourths of US industries over the last several decades, indicating increasing concentration in those industries. Moreover, the market share of the four largest corporations within each sector has increased even more for most industries.17 The revenue share of the fifty largest companies in most industries has increased steadily since 1997. And since 1980, the revenue of Fortune 500 companies as a percentage of GDP has increased from 58 to 73 percent.18 Both of these indicators show growing concentration. As causes of concentration, mainstream economists emphasize factors such as economies of scale, allowing large firms to undercut competitors’ prices. Entry and exit costs inhibit entrance of competitors. It costs a lot of money to start manufacturing automobiles. Would-be competitors may lack access to technology and capital that dominant firms can often take for granted. Neoliberal administrations have reduced antitrust enforcement, driven by both ideology and efficiency considerations. Between 2008 and 2017, the Justice Department filed only one district court monopoly lawsuit under the Sherman Antitrust Act of 1890, down from sixty-two between 1970 and 1979. 19 Research and development costs needed to stay com-

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petitive are readily absorbed by giant corporations but may be unaffordable to smaller competitors. The increasing concentration of patents bestowing de facto monopoly control over emerging technologies undercuts the diffusion of knowledge and technology that would spur competition. One study found an increase in the share of patents held by the top 1 percent of firms from 35 percent in the early 1980s to approximately 50 percent and that the share of patents held by new and emerging businesses declined by nearly half from 7 to 4 percent. Adding to this shift, many of the top firms are increasing or reinforcing their lead by buying patents from other companies at a rate of approximately 67 percent.20 A more fundamental explanation notes that market concentration is an ongoing feature of a capitalist political economy. It is wired into the logic propelling both individual actors and institutional forces. To maximize profit, a corporation will naturally seek to limit or eliminate competition. So the corporation will try to prevent entry by competitors or rid the market of competitors by acquiring them or driving them out of business. The result, as noted by one economist, is that “in most markets the very process of competing for high profits or a bigger market share tends to create a concentrated, rather than a competitive, market structure.”21 Any competitive system will inevitably produce winners and losers. Unless someone somehow hits a reset button, winners acquire and retain power, which begets more winning. Play it out far enough, and winners acquire dominance. Of course, the dominance may be tenuous, depending on factors already discussed. Contemporary concerns about the consequences of market concentration emphasize the impact on consumer prices and the control of labor markets (especially wages). A powerful corporation in a relatively noncompetitive industry is positioned to increase prices and lower wages in order to increase profits. All three of these elements—increased prices, lower wages, and increased profits—are evident results of contemporary market concentration. Average markups (pricing over cost) in the United States were mostly static during the 1955–1980 period. But they have tripled since 1980.22 Generally, higher market concentration means lower wages. Indeed, the research shows that industries experiencing a larger increase in market concentration have seen a larger decline in labor share of

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income.23 The profit of major corporations has more than doubled since 1980 to 14 percent of GDP, as measured in terms of before-tax profit share of GDP.24 If you are the only game in town, consumers and workers have no alternative but to play by your rules: to pay the prices you charge and accept the labor terms you offer. The same logic applies to many oligopoly markets. Market concentration is highly likely, if not inevitable, in a capitalist political economy in which the government has abandoned the field, opts out of antitrust enforcement, or acts proactively on behalf of the most powerful and privileged. And market concentration amplifies the upward redistribution of income and wealth.

Free Trade Versus Fair Trade Free trade advocates claim it increases cross-border commerce, making it easier and cheaper for countries to import needed goods and services while focusing on domestic production of goods and services in which they have a comparative advantage. A surge in job-creating exports more than compensates for any increase in job-killing imports. While cross-border commerce may increase, benefits too often accrue to capital at labor ’s expense. As one economist put it, free trade deals “are about structuring trade to redistribute income upward.” They are also a “tool whereby corporate interests can block health, safety, and environmental regulations that might otherwise be implemented by democratically elected officials.”25 In 1994, the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico went into effect. President Bill Clinton and others claimed NAFTA would create 200,000 new jobs in the United States each year in the first five years alone. It led instead to a surge in imports without a corresponding offset by exports, causing a burgeoning trade deficit with Mexico and Canada and loss of an estimated 1 million net jobs by 2004 and another 850,000 by 2013. Since then, more jobs have been lost as the trade deficit with Mexico has continued to widen.26

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These numbers reflect only those job losses attributed specifically to NAFTA. Other US jobs have been lost to growing participation since 1995 in another, more encompassing free trade regime, the World Trade Organization (WTO). Free trade proponents note that the United States during this period did not see a net overall loss of jobs. However, many jobs lost to NAFTA and WTO were in industries, such as auto manufacturing, electronics, appliances, and heavy equipment, that paid relatively high wages. Many were replaced, if at all, by low-paying service-sector jobs. According to the US Bureau of Labor, two in every five workers who lost jobs attributable to NAFTA took replacement jobs that paid lower wages. One in every four displaced manufacturing workers took a wage reduction of at least 20 percent.27 Between 1993 and 2017, the manufacturing sector lost approximately 4.5 million jobs that paid approximately $26 per hour on average. During the same period, the leisure and hospitality industry added approximately 5.5 million jobs that paid an average wage of around $13 per hour, or around half the wage paid by manufacturing jobs.28 US corporations began moving jobs to Mexico well before NAFTA, taking advantage of lower labor and environmental costs. NAFTA simply accelerated the movement by making it easier and cheaper for corporations by eliminating barriers to trade and investment. Mexican workers made less per day than US workers made in an hour. Corporate profits surged while US workers’ wages declined, contributing to the trickleup movement of income and wealth in the United States.29 Free trade agreements make cross-border movement of capital easier. But they do not allow cross-border movement of labor. This puts US labor at a bargaining disadvantage relative to capital. If workers seek an increase in wages or improved working conditions, corporate leaders can respond with threats of relocation abroad where they can pay wages at a fraction of those paid to US workers and at the same time avoid pesky, expensive environmental regulations. This mutes workers’ power by putting their jobs on the line. Workers who push too hard for higher wages and environmental protections risk losing their jobs. The same can be said for anyone interested in forcing US corporations to become better environmental stewards. If you put too much pressure on

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them in ways that threaten their bottom lines, they can plausibly threaten to relocate abroad. This dynamic increases the power of capital relative to labor, helping push the upward redistribution of income and wealth. An ominous Cornell University study, commissioned by the NAFTA Labor Commission, found that within two years of NAFTA’s implementation, nearly two-thirds of US union drives faced threats of relocating abroad, and factory shutdowns in the face of unionization tripled.30 Thanks in part to free trade, US workers are increasingly required to compete with imports made by low-paid workers elsewhere, including and especially China in recent years. Free trade has depressed wages by throwing more US workers into the pool of unemployed and underemployed workers seeking jobs in low-paying service-sector jobs. Every administration in the last several decades, with one partial exception, has supported the development and expansion of free trade agreements. New agreements include the United States–Korea Free Trade Agreement (2007), a proposed Trans-Pacific Strategic Economic Partnership Agreement (TPP, signed in 2016 but set aside in 2017 when the US withdrew), the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR, 2005), the US-Mexico-Canada Agreement (USMCA, 2020), and free trade agreements with some dozen individual countries. That lone partial exception is the Donald Trump administration. His withdrawal from the TPP, imposition of tariffs, and turn toward protectionism of certain industries are often cited as reasons why many White, working-class voters supported him. They know better than most the actual impact of free trade, because they experience it firsthand. The Trump administration shored up its support among this constituency by compensating farmers and other core supporters hurt by his trade wars, sometimes with payments that exceeded the amounts lost due to his policies. As this suggests, support for free trade does not follow strict partisan lines. Critics on the left generally advocate fair trade to replace free trade. Fair trade is an ethically conscious attempt to support sustainable, equitable development by injecting explicit worker and environmental protections into trade considerations. It balances concern for profit

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against worker and environmental protections. Unlike free trade, fair trade attempts to avoid favoring capital over labor and therefore is less likely to redistribute upward. Leftist critics also advocate alterglobalization strategies to replace the dominant version driven by corporate needs that override human and ecological needs. Their priorities include democracy, satisfaction of basic needs, human rights, environmental concerns, and local and regional control over economic systems. 31

Make Power Democratically Accountable To hold market power accountable, citizens in a democracy must have some means of exercising their sovereignty. For all its problems and limitations, government is, in our time, the most obvious and effective means of doing so. This is, of course, easier said than done, especially if the goal is to reverse decades of policies that drive the trickle-up economy. And precisely here we see the power of the market in sharp relief. Market power can often thwart the use of political power if it is perceived as hostile to business interests. Earlier I noted mainstream economists’ preoccupation with the negative consequences of concentrated economic power in the form of higher consumer prices and low wages. These are real-enough concerns, but there are deeper problems, largely set aside by policymakers since the early 1900s. Democracy itself is at stake. 32 To understand how, consider Walmart’s impact on small-town America. Having eliminated most of its competitors in small-town America—the independent, mom-and-pop retailers that used to line the main streets of every rural town and village—Walmart operates practically as a monopoly and monopsony in those areas. As a monopoly, it can determine the availability and price of goods and services. As a monopsony, the only supplier of jobs, it can set the terms of employment. Any profit earned by the company leaves the local community to be deposited in the bank accounts of company headquarters in Arkansas. Local capital and the civic capacity it underwrites are siphoned off. Anyone traveling through rural

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America in the last thirty to forty years has seen the result. Thriving downtowns in rural America with independent merchants selling everything from hardware and clothing to hamburgers and haircuts have been decimated, leaving near– ghost towns of struggling tattoo parlors, tanning salons, and exercise studios. These trends put Walmart and other national chains in a powerful position of setting the basic terms of ordinary life for residents. Any attempt by locals to exert control over corporate behavior in their communities can be met with intransigence or worse, thwarting local autonomy and selfgovernment. Residents lose the capacity to set the basic terms of their lives. This is an abridgement of freedom every bit as real as the loss of freedom feared by Friedman through government. This antidemocratic dynamic is captured in Charles Lindblom’s phrase “market as prison.”33 According to Lindblom, markets sometimes function as punitive mechanisms that punish policymakers for acting against the interests of business. Consider what might happen if a city mayor and members of the city council decide to pass a living wage law in the city. Business interests naturally would view this as unfavorable to their interests, since it would increase their cost of doing business and might undermine their profitability. Some, anyway, would begin looking at options for relocating outside the city where no living wage laws were in effect or threatened. Assuming some did relocate, public officials and residents would suffer the consequences in the form of lost jobs, a declining tax base, disinvestment in existing infrastructure, and funding of political opponents in the next election. In fact, the mayor and city council members might not get to the point of actually passing living wage legislation, or they might not consider putting it on the agenda. They would know very well that their city, like every other city, was judged in terms of its “business friendliness.” To avoid being perceived as business unfriendly, and anticipating a punitive reaction by the market, they might simply drop the matter before it saw the light of day. The same dynamic is at work in many areas of political economy. Try to pass environmental protections at the local, regional, or national levels, and businesses are likely to push

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back to avoid the hit to their bottom lines. Try to increase taxes on corporations or enact regulations to constrain undesirable corporate behavior, and await the onslaught of lobbyists threatening punitive consequences. The result is what Lindblom called “the privileged position of business” in which business owners enjoy outsize power and privilege. This limits political choice and political action, the freedoms associated with democratic self-government. Overcoming the market as prison at local and state levels will remain difficult so long as the effort remains focused at local and state levels. Corporations can always pit one city or state against another. A federal response is necessary. Without minimizing the challenges, the direction for change is clear. Enforce antitrust legislation already on the books and shore it up. Roll back free trade agreements that enable domination of labor by capital and that encourage movement of capital offshore; substitute fair trade agreements. Intervene in labor markets on behalf of workers rather than capital, with living wage and maximum wage laws. Replace neoliberal values with democratic values. These include local and regional autonomy, homegrown capital and investment, worker autonomy, active citizenship, freedom made effective by viable options, substantive equality, and satisfaction of everyone’s basic human needs. These should take precedence over economies of scale, efficiency, and consumption raised to the power of the pig principle (more is always better than less). Downgrade property rights in the pantheon of human rights. Accept property rights on the condition that they provide for everyone’s basic human needs, and only on that condition. Some products and services should not be run through markets. In particular, basic human necessities such as food and health care may require a nonmarket approach. Otherwise, we ensure that millions of Americans, denied market participation by their lack of financial resources, face lifelong hardship, deprived of basic human necessities. Individuals can do their part. Support small businesses, even if it means paying slightly higher prices. Buy from local merchants. Do not make the mistake of thinking that these market-based solutions to market problems are by themselves sufficient.34 Support politicians who back needed change.

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Notes 1. See Karl Polanyi, The Great Transformation (New York: Holt, Rinehart & Winston, 1944); and Karl Polanyi, Dahomey and the Slave Trade (Seattle: University of Washington Press, 1966). Polanyi demonstrated that markets are only one means that humans have used throughout history to meet their needs. Others he identified include kinship networks oriented toward household provision of basic needs, redistribution in which a social center collects needed goods and then redistributes them according to need, and reciprocity in which exchanges are based on reciprocal need rather than gain. See also Thomas Frank, One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy (New York: Doubleday, 2000), for a discussion of the quasireligious commitment to markets that characterizes some neoliberal accounts. 2. Adam Smith, Wealth of Nations, in Robert Solomon and Mark Murphy, What Is Justice? Classic and Contemporary Readings, 2nd ed. (New York and Oxford: Oxford University Press, 2000), 147. See Emma Rothschild, Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment (Cambridge, MA: Harvard University Press, 2001), for a more nuanced discussion of Smith than the one taught in most university economics and business departments. Rothschild captured Smith’s commitments to an active role for government in redressing market injustices and his insistence on compassion and community to balance the self-interest of the invisible hand. 3. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1982 [1962]), 12, 16, 40. 4. Friedman, Capitalism and Freedom, 40. For a contemporary reiteration of this ideological commitment to the notion that labor markets represent “mutually beneficial cooperation,” see Max Gulker, “The Job Guarantee: A Critical Analysis,” American Institute for Economic Research, October 2018, www.aier.org/article/the-job-guarantee-a-critical-analysis-executive-summary. 5. Friedman, Capitalism and Freedom, 31. 6. See Stanley Aronowitz, Just Around the Corner: The Paradox of the Jobless Recovery (Philadelphia: Temple University Press, 2005), on underemployment as an increasingly characteristic, and permanent, condition of the US economy. 7. For one study of the inadequacy of market approaches to health care, see William Hudson, “Health Care: The Limits of Markets,” in The Libertarian Illusion: Ideology, Public Policy, and the Assault on the Common Good (Washington, DC: CQ Press, 2008), 153–189. 8. Freidman, Capitalism and Freedom, 66. 9. Jeff Madrick, in Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World (New York: Alfred Knopf, 2014), 79, calls this simplistic formula, reduced to its logical implication as markets good, government bad, “Friedman’s Folly.” 10. John Kenneth Galbraith, The Affluent Society, 2nd. ed. (Boston: Houghton Mifflin, 1969 [1958]), 149–152. 11. Geoff Schneider, “If Corporations Are People, What Kind of People Are They?” in Current Economic Issues, ed. James Cypher et al., 23rd ed. (Boston: Economic Affairs Bureau, 2019), 111–118. See Ted Nace, Gangs of America: The Rise of Corporate Power and the Disabling of Democracy (San Fran-

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cisco, CA: Berrett-Koehler Publishers, 2005), on the centrality of property rights and how corporations acquired more effective rights than people. 12. Chris Schelling, “The Problem with Capitalism? We Don’t Have Enough of It,” Institutional Investor, May 21, 2019, www.institutionalinvestor.com/article /b1fhs3c4bs1mh8/The-Problem-With-Capitalism-We-Dont-Have-Enough-of-It. 13. See, especially, Bonnie Kavoussi, “How Market Power Has Increased US Inequality,” Washington Center for Equitable Growth, May 3, 2019, https:// equitablegrowth.org/how-market-power-has-increased-u-s-inequality. Kavoussi cites dozens of studies linking market concentration to increasing inequality. See also Rob Larson et al., eds., Real World Micro, 27th ed. (Boston: Economic Affairs Bureau, 2020), esp. chap. 5, “Market Failure I: Market Power.” 14. According to one study, just ten corporations “control almost every large food and beverage brand in the world.” See Kate Taylor, “These Ten Companies Control Everything You Buy,” Independent, April 4, 2017, www .independent.co.uk/life-style/companies-control-everything-you-buy-kelloggs -nestle-unilever-a7666731.html. 15. Schelling, “The Problem with Capitalism?” 16. On media concentration, see Ben Bagdikian, The New Media Monopoly (Boston: Beacon Press, 2004); and Ben Bagdikian, “Who Owns the Media,” Public Broadcasting System, Independent Lens, 2017, www.pbs.org /independentlens/democracyondeadline/media ownership.html. 17. Schelling, “The Problem with Capitalism?” On growing market concentration in the United States, see also Tim Wu, “The Oligopoly Problem,” New Yorker, April 15, 2013; David Autor et al., “The Fall of the Labor Share and the Rise of Superstar Firms” (Working Paper 23396, Massachusetts Institute of Technology, May 2017), www.nber.org/papers/w23396; and “Which Corporations Control the World?” International Business Degree Guide, https://internationalbusinessguide.org/corporations. 18. Council of Economic Advisers, “Benefits of Competition and Indicators of Market Power,” Obama White House, 2016, https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160414_cea_competition_issue_brief.pdf; William A. Galston and Clara Hendrickson, “A Policy at Peace with Itself: Antitrust Remedies for Our Concentrated, Uncompetitive Economy,” Brookings Institution, 2018, www.brookings.edu/research /a-policy-at-peace-with-itself-antitrust-remedies-for-our-concentrated -uncompetitive-economy. See also Barry Lynn, Cornered: The New Monopoly Capitalism and the Economics of Destruction (Hoboken, NJ: John Wiley and Sons, 2010). Lynn details the rising concentration of most US industries since the 1980s. He concludes that dominance by two or three firms in each industry is no longer the exception but the rule. 19. “Antitrust Division Workload Statistics, FY 2008–2017,” US Department of Justice, www.justice.gov/atr/file/788426/download. See also Kavoussi, “How Market Power Has Increased US Inequality.” 20. Ufuk Akcigit and Sina Ates, “What Happened to U.S. Business Dynamism?” (Working Paper 25756, National Bureau of Economic Research, 2019), www.nber.org/papers/w25756. 21. Chris Tilly, “Is Small Beautiful? Is Big Beautiful?” in Real World Micro, ed. Rob Larson et al., 27th ed. (Boston: Economic Affairs Bureau, 2020 [2002]), 152. 22. See Jan De Loecker, Jan Eeckhout, and Gabriel Unger, “The Rise of Market Power and the Macroeconomic Implications,” JanEeckhout.com, November 15, 2019, www.janeeckhout.com/wp-content/uploads/RMP.pdf; James

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Traina, “Is Aggregate Market Power Increasing? Production Trends Using Financial Statements” (New Working Paper Series No. 17, Stigler Center for the Study of the Economy and the State, University of Chicago Booth School of Business, February 2018), https://research.chicagobooth.edu/-/media /research/stigler/pdfs/workingpapers/17isaggregatemarketpowerincreasing .pdf; and Federico Diez, Daniel Leigh, and Suchanan Tambunlertchai, “Global Market Power and Its Macroeconomic Implications” (Working Paper No. 18/137, International Monetary Fund, June 15, 2018), www.imf.org/en /Publications/WP/Issues/2018/06/15/Global-Market-Power-and-its-Macro economic-Implications-45975. 23. See Simcha Barkai, “Declining Labor and Capital Shares,” London Business School, 2017, http://facultyresearch.london.edu/docs/BarkaiDeclining LaborCapital.pdf; Gauti Eggertsson, Jacob A. Robbins, and Ella Getz Wold, “Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States” (Working Paper Series, Washington Center for Equitable Growth, February 2018), http://equitablegrowth.org/wp-content/uploads/2018/02/0205-2018 -WP-kaldor-piketty-monopoly-power.pdf; Elena Prager and Matt Schmitt, “Employer Consolidation and Wages: Evidence from Hospitals” (Working Paper Series, Washington Center for Equitable Growth, February 26, 2019), https://equitablegrowth.org/working-papers/employer-consolidation-and -wages-evidence-from-hospitals; Efraim Benmelech, Nittai Bergman, and Hyunseob Kim, “Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?” (Working Paper 24307, National Bureau of Economic Research, February 2018), www.nber.org/papers /w24307; and José Azar, Ioana Marinescu, and Marshall I. Steinbaum, “Labor Market Concentration” (Working Paper 24147, National Bureau of Economic Research, revised February 2019), www.nber.org/papers/w24147. 24. Ufuk Akcigit and Sina T. Ates, “Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory” (Working Paper 25755, National Bureau of Economic Research, April 2019), www.nber.org /papers/w25755; De Loecker, Eeckhout, and Unger, “The Rise of Market Power and the Macroeconomic Implications”; and Barkai, “Declining Labor and Capital Shares.” 25. Dean Baker, “Want Free Trade? Open the Medical and Drug Industry to Competition,” in Real World Micro, ed. Rob Larson et al., 27th ed. (Boston: Economic Affairs Bureau, 2020 [2013]), 67. See also Arthur MacEwan, “The Gospel of Free Trade: The New Evangelists,” in Real World Macro, ed. Elizabeth Henderson et al., 37th ed. (Boston: Economic Affairs Bureau, 2020 [2018]), 292–301, which argues that the powerful countries of the world use free trade to expand their power and control. 26. One study estimated a 576 percent increase in the trade deficit, higher than the trade deficit with countries with whom we have not signed free trade agreements. “NAFTA’s Legacy: Lost Jobs, Lower Wages, Increased Inequality,” Public Citizen, September 1, 2019, www.citizen.org/wp-content/uploads /nafta_factsheet_deficit_jobs _wages_feb_2018_final.pdf. See Robert E. Scott, Carlos Salas, and Bruce Campbell, “Revisiting NAFTA: Still Not Working for North America’s Workers,” Briefing Paper 173, Economic Policy Institute, September 28, 2006, http://s2.epi.org/files/page/-/old/briefingpapers/173 /bp173.pdf; and Robert E. Scott, “The Effects of NAFTA on US Trade, Jobs, and Investment,” Economic Policy Institute, 2014, https://ideas.repec.org /a/elg/rokejn/v2y2014i4p429-441.html.

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27. “Displaced Workers Summary,” US Bureau of Labor Statistics, August 25, 2016, www.bls.gov/news.release/disp.nr0.htm. 28. “Industries by Supersector and NAICS Code,” US Bureau of Labor Statistics, www.bls.gov/iag/tgs/iag_index_naics.htm. 29. “NAFTA’s Legacy.” 30. Kate Bronfenbrenner, “The Effects of Plant Closing or Threat of Plant Closing on the Right of Workers to Organize,” North American Commission for Labor Cooperation Report, 1997, https://digitalcommons.ilr.cornell.edu /cgi/viewcontent.cgi?article=1000&context=intl. 31. See, for example, John Cavanagh, Alternatives to Economic Globalization: A Better World Is Possible (San Francisco, CA: Berrett-Koehler Publishers, Inc., 2002), for an early-twenty-first-century rendition of some priorities of the alterglobalization movement and a critique of corporate globalization. 32. See Michael Sandel, Democracy’s Discontent: America in Search of a Public Philosophy (Cambridge, MA: Belknap Press, 1996), which identifies an early-twentieth-century shift in the rationale for antitrust action from democratic self-government to consumer prices. 33. Charles Lindblom, “The Market as Prison,” Journal of Politics 44, no. 2 (May 1982): 324–336. See also Charles Lindblom, Politics and Markets: The World’s Political-Economic Systems (New York: Basic Books, 1977). 34. See Anand Giridharadas’s critique of some wealthy philanthropists who want to solve problems caused by markets using market logic of innovation, entrepreneurialism, and initiative. This lets them off the hook, he argues, since it does not threaten the system that made them rich and powerful. He cites Audre Lorde’s observation that these people want to use the master’s tools to dismantle his house. Anand Giridharadas, Winners Take All: The Elite Charade of Changing the World (New York: Vintage Books, 2018).

9 Reversing the Flow: Toward a More Democratic Political Economy

According to one common narrative, while some fortunate Americans are amassing huge fortunes, others are “left behind.”1 This phrasing suggests that radical inequality is a passive, unintended, and unanticipated result of unfolding events rather than the result of deliberate, proactive policies. Lower- and middle-income Americans are not left behind. They are driven back, pushed to the rear. Political and economic elites have shaped an undemocratic political economy that denies most Americans a fair share. Yes, globalization, technological change, and impersonal market forces have played significant roles in growing inequality, but deliberate policy choices have shaped the character and impact of these systemic forces. The list of billionaires continues to grow, and their fortunes continue to swell. Forbes counted 614 US billionaires in spring 2020, most of them elderly White men. Jeff Bezos topped the list at $189 billion. Through November 2020, even a catastrophic pandemic could not slow the surge of wealth possessed by the richest Americans, thanks in part to a stock market that continued to hit new milestones.2 Meanwhile, lower- and middle-income Americans’ incomes have flatlined or declined. The wealth they help generate, and

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that should rightfully be theirs, has been transferred upward in wholly predictable and preventable ways. Trillions of dollars are transferred upward every year through the wage system, the tax structure, social welfare spending, corporate welfare, banking and finance, White privilege, and so-called free markets. While it is tempting to attempt a more precise dollar estimate of the overall magnitude of upward redistribution, the calculations are too many and varied for this volume. Nevertheless, recent estimates in targeted areas offer some insight. The Rand Corporation put the figure at an eye-popping $47 trillion in lost wages alone for American workers in the bottom 90 percent over the 1975–2018 period. For 2018 alone, the authors calculated that upward redistribution into the bank accounts of the richest 10 percent of Americans cost the bottom 90 percent of American workers $2.5 trillion in lost wages. Had 2018 wages been shared in the same proportions as during the first three decades after World War II—a minimal gesture toward a more egalitarian wage system—the 2018 median American income would have doubled. In another recent estimate, writer Kurt Andersen calculated in 2020 that dividing all US income and wealth equally would vault every American into the upper-middle class, with an annual income of $140,000 and net worth of $800,000.3 These numbers give some sense of the magnitude of trickle-up over the previous half century and the potential for a more egalitarian political economy.

We Have Been Here Before During the Gilded Age of the late nineteenth century, inequality reached extreme proportions rivaling today’s version. Its characteristics and the rationales used to legitimize it were fictionalized in a best seller of the time, Looking Backward, by Edward Bellamy. Bellamy used a coach metaphor to dramatize the inequality. An elite few sat atop the coach, while the masses crowded together below to pull the coach through mud and filth. Driven by hunger, they gazed upward at the lucky few, wishing they could join them. The elite few recognized the pain and suffering of the masses below and shouted encour-

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agement and exhortations to continue striving. But they did not offer to share or surrender their seats. Occasionally the coach would hit a bump, dislodging several of the elite, who fell from their lofty perch and had to take a place at the bottom. Bellamy identified two “curious fictions” that were used to defend the radical inequality and attendant suffering. First, people of the time believed “that there was no other way in which Society could get along, except when the many pulled at the rope and the few rode. . . . No very radical improvement even was possible. . . . It had always been as it was, and it always would be so.” Second was “a singular hallucination which those on the top of the coach generally shared, that they were not exactly like their brothers and sisters who pulled at the rope, but of finer clay, in some way belonging to a higher order of beings who might justly expect to be drawn.”4 Today, similar “curious fictions” are used to rationalize the trickle-up economy and the radical inequality it produces. The fatalism captured by Bellamy’s first “curious fiction” remains alive and well in expressions of exasperation and regret about how impersonal forces outside our control are driving the separation of haves from have-nots. These include the already-mentioned globalization, technological change, and impersonal market forces. The widely held belief among Bellamy’s elite that they were made of finer stuff remains alive and well today in the myth of the American Dream and its implications about winners and losers. According to this mythology, the US economy reliably generates enough opportunities for everyone to succeed. Economic growth constantly opens new opportunities that enterprising individuals can harness to their benefit. Abundance is built into the system. The implications are clear enough. If you are rich, you earned it. If you are poor or struggling, you must be doing something wrong. You are deficient in the attitudes and skills needed to succeed. If people of color are faring the worst, then they must be the most deficient. Few people want to say this openly, but the implications lie just below the surface. Another implication is that if you are doing poorly and it is your fault, then others owe you nothing in the way of redress or a helping hand. Government assistance would only reward your bad choices and laziness while encouraging more

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of the same moving forward. This “tough love” response is a close cousin to the social Darwinism of Bellamy’s time in offering a convenient rationale for inaction on radical inequality. Access to the American Dream has always been selective. In the United States, the best predictor of where you will end up is where you start. Start in the lower class, and you will likely stay there. Start in the upper class, and enjoy the ride atop the coach.5 Or as Martin Luther King Jr. noted more eloquently, it is a cruel joke to tell a bootless man to pull himself up by his bootstraps. Growing neoliberal ascendancy has driven the more egalitarian liberalism of the New Deal and Great Society into an increasingly ineffective defensive posture, when not driven entirely from the field.6 Building selectively on earlier liberal traditions, neoliberals double down on radical individualism, self-interest, property rights, freedom from government interference, and an expansion of private life. Any attempts to move beyond liberalism to some form of democratic socialism is met with exaggerated, hysterical outbursts about the impending breakdown of civilization.

Rattling Apart The trickle-up economy is socially, economically, and ecologically unsustainable.7

Socially Unsustainable People who suffer deprivation with little hope for a better future may eventually and understandably rebel, leading to increased crime and instability, if not outright revolution. The increasing turn across the United States toward surveillance, policing, and incarceration are symptomatic responses to growing anger and dissatisfaction caused by radical inequality. According to one conservative and narrowly defined estimate, the United States already employs approximately 20 percent of its labor force in various forms of social control.8 The limits of this militarized response to growing dissatisfac-

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tion were evident during the proliferation of Black Lives Matter protests during the spring and summer of 2020. You can keep the lid on for only so long, and only at very high cost, whether measured in dollars or social upheaval and division. Both Republican and Democratic administrations bear responsibility for this shortsighted approach to solving structural and systemic problems linked to inequality.

Economically Unsustainable The trickle-up economy is also unsustainable to the degree that it undermines the purchasing power of lower- and middleincome Americans. Too little income for American workers means too little aggregate purchasing power, which undermines profitability and causes recessions. In that sense, radical inequality is bad for business. Two trends regarding the future of work add perspective and urgency to this point. First, there is no reason to expect those middle-class jobs lost from the United States to globalization over the last forty years to return and every reason to expect low-paying, service-sector jobs to continue filling up lists of occupations with the most job openings. Retraining of displaced workers, a response favored by both conservative and liberal policymakers, can only go so far. Most of those fastest-growing occupations require little, if any, training or education. Adding layers of training and education simply magnifies the problem of underemployment in which highly educated workers take jobs for which they are overqualified. Second, technology is likely to continue eliminating many jobs, as machines substitute for human labor. We are already seeing this trend in advanced computer and robotics applications, ranging from driverless vehicles to assembly lines with no humans in sight to self-serve checkout lines in retail stores. It is estimated that this “Fourth Industrial Revolution,” in the lingo of the World Economic Forum, will eliminate somewhere between 15 and 30 percent of current jobs in the United States in just the next ten to twenty years, with more “at risk.” In light of this trend, we need to ask, as does Kurt Andersen, what will we do once machines make us “economically redundant”?9 We can meet these challenges, as we have so far, by diverting displaced workers into low-paying service-sector jobs

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while exhorting them to work harder. As Bellamy vividly portrayed, we can employ more and more people to pull the coaches of an elite class of wealthy Americans who benefit from these trends. And we can consign others to unemployment supported marginally by stingy public assistance while disparaging them for not trying hard enough. If we go this dual route of underemployment and unemployment within the existing neoliberal political economy, we will continue to suffer the consequences of radical inequality. Alternatively, we can embrace a future in which machines liberate us from mind-numbing and backbreaking jobs while providing more leisure for everyone. But this will require dismantling current distributions of power and wealth. In short, this path is inconsistent with the trickle-up economy. Proposals are already on the table in forms such as shared jobs, shorter workweeks, public works jobs, and a universal basic income (UBI). Critics scoff at these ideas, but the feasibility of some has already been tested. For example, the New Deal’s Works Progress Administration and Civilian Conservation Corps employed some 11.5 million Americans over a nineyear period, helping to address the deprivation caused by unemployment and to pull the United States out of the Great Depression. Similarly, Keynesian spending has long been recognized as a reliable way for the government to stimulate job creation, whether or not the government itself acts as the employer. As for a UBI, Alaska already implemented one in the form of the Alaska Permanent Fund, which sets aside funds derived from oil production for an annual dividend of approximately $1,000 to $2,000 for every Alaskan. It also sets aside funds for future generations. While not without its problems—most notably, dependence on resource extraction and a dividend that does not provide a living wage income—the Alaska Permanent Fund establishes in practice the principle on which a UBI is based: sharing the wealth of the commons. Currently we let private individuals and corporations exploit the commons for their own private gain, in areas such as communications networks, patents, licensing of broadcast airwaves, grazing on public land, access to public timber, untaxed pollution rights and carbon emissions, and use of publicly funded research and development. These gains could instead be shared more equally among current and future generations.

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Can the United States afford a UBI? One answer to that question comes from the 2020 Rand Corporation study. Take that $2.5 trillion in aggregate wages lost by ordinary American workers in 2018 to the trickle-up economy. Divide it in the minimally equitable post–World War II proportions widely perceived as acceptable, in which all income groups’ incomes grow at roughly equal rates. The result: an additional $1,144 per month, or $13,728 per year, into the pockets of every American worker in the bottom nine deciles. Or to make up ground lost to trickle-up economics, go beyond minimal equitability to make the UBI calculation progressive by growing lower incomes at faster rates than higher incomes. Either way, this much seems clear: the US economy can comfortably support a generous UBI. More broadly, the US economy produces plenty for everyone to meet their basic human needs. The problem is not overall production or shortage of material wealth. The problem is endemic maldistribution, made worse by the trickle-up economy.

Ecologically Unsustainable The American Dream relies on the assumption of abundance, that there are enough planetary resources for everyone to go out and get their share, as much as they want and their abilities allow. This assumption of abundance is captured in the seemingly limitless commitment to limitless economic growth. Measured in terms of GDP growth, it is embedded in mainstream economics, and most politicians embrace it because their political fortunes depend on it. With economic growth, aggregate wealth expands, from which, in theory, anyone can claim their portion. The rich need not share if there is more for the taking by others. Economic growth thus makes downward redistribution unnecessary. But economic growth may or may not result in shared prosperity. It depends on who gets that net increase in wealth. In the trickle-up economy, the rich get most of that increase. Aside from occasional recessions, the US economy has grown steadily since 1980. So has corporate profit and worker productivity. During the same period, wages and income for lower- and middle-class Americans have largely flatlined or decreased.

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One obvious solution is to ensure that all Americans share in the benefits of economic growth. This is certainly preferable to the status quo. Unfortunately, this option runs up against the urgent, looming crisis of accelerating climate change. The failure to adequately address climate change represents a massive generational redistribution of income and wealth from future to current generations. Current and past generations have benefited by draining resources from future generations in cataclysmic overuse and misuse of finite planetary resources. If present trends continue, the heaviest costs of that generational redistribution will fall on the shoulders of marginalized peoples who almost always bear the heaviest costs of environmental stresses and breakdowns. Economist John Kenneth Galbraith posed this problem of misuse of shared resources in terms of a social imbalance. In a healthy society, he argued, public and private spending is roughly balanced. For example, private consumption of automobiles is roughly matched by corresponding investment in the infrastructure needed to effectively support automobile use and, more broadly, human transit. Galbraith argued that the United States of the midtwentieth century was socially imbalanced, with excessive private consumption overwhelming public investment, leading to a situation of “private opulence, public squalor.”10 For example, while our consumption of increasingly luxurious automobiles has expanded steadily, road construction and maintenance have not kept up, as made plain by any drive through a pothole-riddled urban street or time lost to interminable traffic jams. More importantly, the private and public investment in private automobiles crowds out investment in desperately needed public transit to move growing populations in more ecologically friendly ways. Galbraith’s argument applies today even more than it did during his midtwentieth century context. Peter Barnes tells a similar story of misuse of our “commons,” by which he means the natural and social inheritance in which we all should share. According to Barnes, our ongoing failure to recognize and husband this shared inheritance leads to “ceaseless destruction of nature and widening inequality among humans.” The former—destruction of

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nature—is driving us toward irreversible, devastating climate change. The latter—widening inequality—is caused by the privatization of the commons by individuals and corporations that misuse it for short-term gain at long-term and common expense. This privatization takes many forms, from the patenting of seeds and medicines to the leasing of forests for clear-cutting by lumber companies to the giving away of pollution rights. In all cases, current generations extract benefits from the commons while creating costs that future generations will have to pay. Economic growth exacerbates this problem by magnifying the degree to which the commons is “cannibalized.”11 To address these issues, some progressives are setting their sights on a Green New Deal that will greenwash the US economy. But this strategy leaves in place the commitment to constant economic growth and the excessive consumption and materialism that drive it.12 A Green New Deal may be an improvement, but it is inadequate as a response to the twin challenges of radical inequality and ecological sustainability. In its current form, the US economy fully embraces the pig principle, the assumption that more is always better than less. More economic growth is always better than less. More consumption is always better than less, because it drives economic growth and satisfies more of our wants in the process. More and bigger landfills allow us to hide from our own waste. Any attempt to come fully to terms with the challenges of both inequality and unsustainability must confront planetary limits. It requires getting off the hamster wheel of economic growth and transitioning to a steady-state or even degrowth economy. Americans will eventually have to ask themselves: How much is enough? Certainly, enough to meet all basic material and psychological human needs, if not all wants. 13 That goal of satisfying needs is well within reach without straining the earth’s carrying capacity. For starters, we need a better metric than GDP, irredeemably wedded to the pig principle as it is, for measuring human well-being. The Social Progress Index, however flawed, measures the social and environmental well-being of a country’s inhabitants using some fifty variables, including the provision of basic needs. It provides a much broader and

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deeper sense of life on the ground. Using this metric, the United States ranked twenty-sixth out of thirty OECD countries in 2019. Other measures include the General Progress Indicator and the Human Development Index, both of which attempt to account for a wider set of variables than economic growth. These include, for example, environmental costs, health, happiness, and access to material bases for a secure, comfortable life.14 Any hope for the steady-state or degrowth strategy requires downward redistribution. Otherwise, existing inequalities and their attendant suffering will simply harden. It is not enough simply to stop redistributing upward. The wealth that has already accumulated in the pockets of the rich must be returned to people at the socioeconomic bottom and middle. The means of accomplishing this have been considered throughout this book: a more egalitarian wage system; social welfare spending that benefits everyone, but especially people on the bottom; a more progressive tax system; public spending on programs that particularly benefit lower- and middle-income people; a steep inheritance tax on large estates; reparations for people of color; the steering of markets toward more equitable ends; dismantling policies underlying the trickle-up economy; and more. None of these options are unprecedented in US history. The daunting political obstacles say more about how far the political center has shifted to the right than they do about practical feasibility.

Equal Formal Rights Are Not Enough The trickle-up economy is unethical and unjust. Without the American Dream promising fair return on effort and positive-sum outcomes for all, what is left to justify massive upward redistribution? Strip away the mythology and it is easier to see that the trickle-up economy is deeply at odds with the ethical values that most Americans claim to embrace. The trickle-up economy is founded on principles of radical individualism, self-interest, consumption, materialism, and greed. These are forthrightly embraced by the most ardent

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supporters of capitalism. They may or may not drive a dynamic capitalist political economy, but they cannot serve as guides to redressing the human suffering and ecological meltdown they produce. Whether derived from philosophical, religious, or spiritual tradition, most Americans claim allegiance to an individualism bounded by solidarity and community. To self-interest balanced by a concern for the well-being of others. To empathy, compassion, and sympathy, those “moral sentiments” endorsed by Adam Smith. To consumption and materialism bounded by sharing, generosity, and a concern for future generations. These values should drive public policy.15 Americans attempt to reconcile these competing values by walling off the economic values from other areas of their lives. So-called economic values can apply in the economic sphere and, in theory, need not infect other aspects of life. But infection is inevitable as the norms and values of a capitalist political economy seep into all corners of our lives. We are awash in illustrations: ubiquitous corporate branding in sports, the prosperity gospel, the convergence of shopping and leisure, consumption-based entertainment and culture, the commodification of art and labor, educational institutions corrupted by commercial interests, the dominance of corporate messaging in public visual space, and more. Nominally, the principle of distributive justice embedded in the American Dream is “you get what you deserve.” This makes the United States a meritocracy, in name anyway. Individuals succeed or fail based on their own merits. If you work hard and play by the rules, you will succeed, rightly so. If you shun hard work and embrace the wrong values, you will fail, rightly so. Assuming fair rules, the process of sorting winners and losers according to merit runs its course. This approach to distributive justice is tied closely to rights in the United States. If we all have the same rights, as guaranteed in the US Constitution, then in theory and by definition the process of sorting winners and losers is fair and just. Government plays a neutral role of ensuring that the process is fair by protecting individual rights. But if rights are necessary, they are insufficient by themselves. If women now have more or less the same rights as men, why do they continue to lag in income? In political

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power? In achievement at the highest levels of corporate management? If people of color have the same rights as White people, why as a group do they lag on many socioeconomic indicators? No doubt, some Americans will answer that women and people of color simply do not have what it takes to achieve at the same level as White men. Many other Americans reject this bluntly sexist and racist answer, preferring a kinder, gentler version: the discrepancies are the result of the choices people make. In short, they blame the victims, a strategy that does not require questioning the validity of the American Dream. Equal formal rights do not guarantee fairness. Neoliberal economist and libertarian luminary Friedrich von Hayek acknowledged this, arguing that outcomes are often the result of luck, with no relationship to merit. Outcomes are also the result of structural advantages and disadvantages, overlooked in a justice regime emphasizing abstract rights. Rights may be necessary, but alone they are insufficient.16 Many Americans face systemic, institutionalized obstacles and disadvantages that derail their path to the American Dream. By ignoring or downplaying the impediments to success and the role played by institutionalized disadvantages— and, sometimes, dumb luck, good or bad—the principle of distributive justice is inverted and perverted from “you get what you deserve” to “you deserve what you get.” If you are poor or struggling, you deserve it because, by definition, you have not made the right choices. You have not worked hard enough. Moreover, rights sometimes directly undermine just outcomes. In the trickle-up economy, property rights frequently override weaker commitments to meeting everyone’s basic needs; to feeding everyone; to providing adequate shelter and clothing; and to ensuring quality health care and education for all. These are not recognized as legal rights in the US Constitution. Since they do not have legal standing, they are easily swept away by property rights, which take precedence. We illustrate this with each failure to properly tax the rich in order to guarantee food security and adequate health care for all Americans. We illustrate it each time we allow a drug company to horde or overprice a life-saving medication.

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Democracy or Plutocracy? The trickle-up economy is undemocratic. Political equality, political freedom, and popular sovereignty are essential ingredients of a healthy democracy.17 They are routinely compromised, and sometimes obliterated, in the trickle-up economy. Money blatantly buys political power in the United States, making a mockery of political equality. Generally, the more dollars you bring to the political process, the louder your voice in it. Political freedom requires that citizens have a meaningful say in determining the basic conditions of their everyday lives. In the electoral arena, every citizen at least gets to cast one vote as his or her say, in theory. No such pretense of democracy is maintained in the economic sphere, where the principle of one dollar, one vote applies. Granted extensive control over basic decisions about natural and human resources, corporations and other powerful economic actors dictate the terms of everyday life, from wages and working conditions to health care and food. They base their terms on bottom-line considerations rather than any notion of the common good or commitment to democracy. It is hard to escape the conclusion that a wealthy elite rule in the United States rather than we the people. Judging from the demographics of power in institutionalized political and economic settings, rich White men in particular play an outsize role. Popular sovereignty is diminished commensurately. These wholly normalized systemic features of US political economy may be a dream come true for defenders of neoliberal capitalism. But they are definitively incompatible with democracy. The corruption of US democracy by neoliberal values encompasses far more than the flood of money through the electoral process or the political affiliation of the president and members of Congress. Over the last half century, US policymakers have deepened long-standing commitments to property rights, freedom of property from government controls, private power wielded by rich individuals and organizations, and corporate sovereignty, while further withdrawing from

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commitments to political equality, freedom as self-government, popular sovereignty, and public control of power.18 Democracy has always been an ideal to which we aspire but necessarily fall short. The distance between the reality and the ideal has widened in the last half century. The trickle-up economy is both cause and consequence.

Notes 1. See, for example, Isabel Sawhill, “What the Forgotten Americans Really Want—and How to Give It to Them,” Brookings Institution, October 2018, www.brookings.edu/longform/what-the-forgotten-americans-really-want -and-how-to-give-it-to-them; Patrick Watson, “This Economy Left Millions of Americans Behind,” Forbes, July 15, 2019, www.forbes.com/sites/patrick wwatson/2019/07/15/this-economy-left-millions-of-americans-behind; Jeff Spross, “The Underappreciated Diversity of ‘Left Behind’ America,” The Week, January 29, 2020, https://theweek.com/articles/892122/underappreciated -diversity-left-behind-america; Eduardo Porter, “How the GOP Became the Party of the Left Behind,” New York Times, January 27, 2020, www.nytimes .com/interactive/2020/01/27/business/economy/republican-party-voters -income.html; and Editors, “The Jobs We Need,” New York Times, July 5, 2020. 2. Carter Coudriet, “The Richest Billionaire in Every State,” Forbes, April 8, 2020, www.forbes.com/sites/cartercoudriet/2020/04/08/the-richest -billionaire-in-every-us-state-2020; Farhad Manjoo, “Even in a Pandemic, the Billionaires Are Winning,” New York Times, November 25, 2020, www .nytimes.com/2020/11/25/opinion/coronavirus-billionaires.html. 3. Carter Price and Kathryn Edwards, “Trends in Income from 1975 to 2018,” Rand Corporation, September 2020, www.rand.org/pubs/working _papers/WRA516-1.html; Kurt Andersen, Evil Geniuses: The Unmaking of America: A Recent History (New York: Random House, 2020), 300–301. 4. Edward Bellamy, Looking Backward (New York: New American Library, 1960 [1888]), 28. 5. Steve Hargreaves, “The Myth of the American Dream,” CNN Business, December 18, 2013, https://money.cnn.com/2013/12/09/news/economy /america-economic-mobility. According to data presented by Hargreaves, social mobility is higher today in most other OECD countries than in the United States. See also “Born to Win, Schooled to Lose: Why Equally Talented Students Don’t Get Equal Chances to Be All They Can Be,” Georgetown University Center on Education and the Workforce, 2019, https://cew .georgetown.edu/cew-reports/schooled2lose; and Daniel Markovitz, The Meritocracy Trap: How America’s Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite (New York: Penguin Press, 2019). 6. Jack Rasmus, The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump (Atlanta: Clarity Press, 2020). Rasmus concludes with a chapter titled “How Neoliberalism Destroys Democracy” (chap. 10, 242–272). 7. See Romaric Godin, “Social Crises, Crises of Democracy, Neoliberalism in Crisis,” in Current Economic Issues, ed. James Cypher et al., 23rd ed.

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(Boston: Economic Affairs Bureau, 2019), 217–221, which addresses a crisis of neoliberalism in three parts: ecological, social, and democratic. 8. Arthur MacEwan, “How Much of the US Economy Is Devoted to Social Control?” in Real World Micro, ed. Rob Larson et al., 27th ed. (Boston: Economic Affairs Bureau, 2020 [2018]), 229–231. 9. Andersen, Evil Geniuses, 330, 322. 10. John Kenneth Galbraith, The Affluent Society, 2nd ed. (Boston: Houghton Mifflin, 1969 [1958]), 227. See chap. 17, “The Theory of Social Balance,” 221–238. 11. Peter Barnes, “Sharing the Wealth of the Commons,” in Real World Macro, ed. Elizabeth Henderson et al., 37th ed. (Boston: Economic Affairs Bureau, 2020 [2004]), 22, 25. 12. On this point, see Juliet Schor, “The Future of Work, Leisure, and Consumption,” in Real World Micro, ed. Rob Larson et al., 27th ed. (Boston: Economic Affairs Bureau, 2020 [2014]), 91–96. Schor argues that “we can’t successfully address climate change with a model in which we continue to try to expand the size of the economy” (96). 13. See, especially, Oscar Nudler and Mark Lutz, eds., Economics, Culture and Society—Alternative Approaches: Dissenting Views from Economic Orthodoxy (New York: Apex Press, 1996). The authors identify a “humanist” school of political economy that foregrounds the meeting of all basic human psychological and material needs. See Wolfgang Sachs, Planet Dialectics (New York: St. Martin’s Press, 1999). Far more than most political economists, Sachs asks readers to confront the problem of limits. He argues we can live fuller, richer lives with less consumption and less mindless, soulless work. See Jenny Odell, How to Do Nothing: Resisting the Attention Economy (New York: Melville House Publishing, 2019), on the latter point. See also Daniel Cohen, Homo Economicus (Cambridge, MA: Polity Press, 2014), for his critique of the close identification of modern economics with the pig principle and his defense of an understanding of happiness less dependent on consumption. 14. For extended discussions of these issues, see Zoe Sherman, et al., Chapter 2, “Macroeconomic Measurement,” in Real World Macro, ed. Elizabeth Henderson et al., 37th ed. (Boston: Economic Affairs Bureau, 2020), 33–64. 15. See Nancy Folbre, The Invisible Heart: Economics and Family Values (New York: The New Press, 2001), which addresses how “family value” commitments are undermined by an unchecked invisible hand. 16. Friedrich von Hayek, The Mirage of Social Justice, vol. 2 of Law, Legislation, and Liberty (Chicago: University of Chicago Press, 1976), 71–74, 84. On the insufficiency of abstract rights for gender justice, see Diana Coole, Women in Political Theory: From Ancient Misogyny to Contemporary Feminism (Boulder, CO: Lynne Rienner Publishers, 1993), 117. 17. See, for example, William Hudson, American Democracy in Peril: Seven Challenges to America’s Future, 3rd ed. (New York: Chatham House, 2001), 20; and Edward Greenberg and Benjamin Page, The Struggle for Democracy, 3rd ed. (New York: Longman, 1997), 8–11. 18. For a detailed discussion of these trends in (neo)liberal democracy in the United States, see Mark Mattern, “Part IV: Democracy and Capitalism,” in Putting Ideas to Work: A Practical Introduction to Political Thought (Lanham, MD: Rowman & Littlefield, 2006), 261–342. See also Gar Alperovitz, America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy (Takoma Park, MD: Democracy Collaborative Press; Boston: Dollars & Sense, 2011).

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Index

AARP, 65 Abood v. Detroit Board of Education, 22 AFDC. See Aid for Dependent Corporations; Aid to Families with Dependent Children Affordable Care Act (ACA), 68 Aid for Dependent Corporations (AFDC), 81, 99–100 Aid to Families with Dependent Children (AFDC), 58, 71, 81. See also Temporary Assistance for Needy Families (TANF) AIME. See Average Indexed Monthly Earnings Alaska Permanent Fund, 168 Allotment Act (Dawes Act), 124–125 Amazon, 18, 43, 88–90, 92 American Dream: class mobility and, 166; inequality and, 4, 165; justice and, 172–174; sustainability and, 169; systemic obstacles to, 16; wages and, 15, 27. See also Meritocracy Antitrust, 150–151, 156 Apple Inc., 40, 95 Average Indexed Monthly Earnings (AIME), 62. See also Social Security Banking, 104, 109, 113–115, 149, 164. See also Payday lending

Basic human needs, 77, 82, 157, 169, 174 Benefits. See Employment benefits Bezos, Jeff, 2, 18, 89, 163 Blame-the-victim, 15, 174 Budget, federal: corporate welfare and, 98; Covid-19 pandemic impact on, 19; Great Recession and, 9; household, 16, 21, 78; Medicare and, 64; payday loan borrowers and, 114; policing and, 137; President Donald Trump administration’s, 9, 69, 133; Social Security and, 60; and Supplemental Nutritional Assistance Program (SNAP) and, 60; surplus, 9, 40; wealth tax impact on, 51; welfare distribution and, 77. See also Deficits, budget Buffett, Warren, 2, 35–36, 49 Bush, President George H. W., 12 Bush, President George W.: American Dream and, 27; supply side tax cuts of, 6, 8–9, 36, 41; Troubled Asset Relief Program (TARP) and, 110 Business climate, 48, 117, 156 Capital gains tax: cuts to, 12; racialized character of, 128; supply

197

198

Index

side economics and, 5; in the US tax code, 40–41, 50 Civilian Conservation Corps (CCC), 168 Climate change, 29, 133, 170–171 Clinton, President Bill, 9; budget surplus of, 9; tax policy of, 40, 115; trade policy of, 152; welfare policy of, 58, 71, 81; war on drugs, 135 Community Development Block Grants, 9, 133 Community Reinvestment Act, 113, 132 Compensation. See Wages; Employment benefits Consumer Financial Protection Bureau, 113–114 Consumer sovereignty, 147. See also Producer sovereignty Consumption tax, 46–47, 89. See also Sales tax Coronavirus Aid, Relief, and Economic Security Act, 10, 66 Covid-19 pandemic: competing policies to address, 10; Congressional response to, 66; fiscal impact of, 8, 66, 96, 115; impact on wages, 14; job loss and, 14; racialized response to, 127; undermining wage growth, 7; unemployment benefits and, 66. Corporate income tax, 42–44; corporate welfare and, 94–96; flat tax proposals and, 39; progressive tax proposals and, 50; supply side economics and, 5, 6; Trump administration policy on, 6, 91, 96, 128 Corporate sovereignty, 99, 175 Corporate welfare, 81–100; in agriculture, 93–94; direct forms of, 86–96; indirect forms of, 96–99; in retail and manufacturing, 88–93; sports stadiums as, 86–88 Debt, national: 8, 43, 39, 51, 115–116. See also Deficits, budget Deficits, budget, 115–116: flat tax proposals and, 39; Keynesian fiscal policy and, 7; redistributive impact of, 116; supply side economic policy and, 8–9, 54; wealth tax and, 51. See also Debt, national

Democracy: corporate welfare and, 99; essential ingredients of, 175; fair trade and, 154; human rights and, 15; inequality and, 4, 53; neoliberal corruption of, 175; popular sovereignty and, 99, 147, 154–157; progressive taxes and, 34, 53; reforming US political economy and, 163–176; wages and, 28–29 Democrats: budget deficits and debt, 116; Covid-19 relief, 10; Great Recession and, 110; supply side economics and, 4; tax policies of, 39, 50; union support of, 22; welfare spending of, 57–58 Deregulation, 5, 9, 108–109. See also Regulation Derivatives, 109 Disabilities: General Assistance and, 74; housing assistance and, 73; Medicaid provisions for, 69; Medicare provisions for, 64; Social Security provisions for, 59–60; Supplemental Security Income provisions for, 72–73 Dividends, stock, 6–7, 41, 43, 95 Dodd-Frank Wall Street Reform and Consumer Protection Act, 110 Dow Jones Industrial Average, 107 DuBois, W. E. B., 15, 129, 139 Earned Income Tax Credit (EITC), 38, 71 Economic growth: American Dream and, 165; corporate welfare and, 87–88; Federal Reserve and, 105; Great Recession and, 110; markets and, 143; supply side economics and, 7, 9–10; sustainability and, 169–172; taxes impact on, 40; wages and, 25–26, 28 Education: American Dream and, 27; commodification of, 173; corporate welfare and, 81–82, 87, 90, 96; equal right to, 15; funding for, 47, 51; markets and, 148; minimum wage earners’, 26; occupational change and, 167; property rights and, 174; public problem of, 29; race and, 129–130, 136–138; social welfare spending on, 45, 59; supply side economics

Index impact on, 9; workfare requirements for, 72 Eisenhower, President Dwight, 85, 131 EITC. See Earned Income Tax Credit Employment benefits: antiracism policies and, 138; autonomy afforded by, 29; as corporate welfare, 96; defined-benefit pensions, 18, 60; definedcontribution pensions, 60; European workers’, 24; Federal Reserve and, 104; free trade agreements and, 22–23; living wage and, 29; low-wage workers’, 16, 21, 26; means-tested welfare and, 67–75, 93, 126; taxpayer subsidies of, 19–20; unemployment and, 14; unions and, 21–22; social insurance welfare, 59–67, 127–128 Environmental Protection Agency, 97, 132 Equal opportunity: inheritance tax and, 45; to jobs, 15; money and, 4, 147; myth of, 165; race and, 122, 125, 130; welfare policy and, 58, 78 Estate tax, 5; flat tax proposals for, 39; progressive taxation of, 50; supply side economics and, 5; US tax code and, 44–45 Facebook, 95 Fair trade, 152–154, 156. See also Free trade Federal Reserve (the Fed), 104–107, 116–117. See also Monetary policy Federal Trade Commission, 98 Flat tax, 38–39 Food stamps. See Supplementary Nutritional Assistance Program (SNAP) Free markets, 9, 53, 144–148, 164 Free trade, 22–23, 152–154, 156. See also Fair trade; North American Free Trade Agreement (NAFTA) Friedman, Milton, 105, 144–147, 155 Galbraith, John Kenneth, 147, 170 Gates, Bill, 2, 27 General Assistance, 74–75 General Progress Indicator, 172. See also Gross Domestic Product; Human Development Index; Social Progress Indicator

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Gilded Age, 164–165 Globalization, 19, 154, 163, 165, 167 Goldwater, Barry, 15 Great Depression, 168 Great Recession, 109–111; corporate tax cuts and, 43; deregulation and, 9; economic growth and, 7; Federal Reserve and, 105; investor speculation as cause of, 108–109; mortgage loans and, 114; racialized unemployment benefits and, 127; welfare spending in response to, 66, 70, 74, 76 Great Society, 77, 166 Green New Deal, 171 Gross Domestic Product (GDP), 6, 33, 42, 115, 150–151, 169, 171. See also General Progress Indicator; Human Development Index; Social Progress Indicator Hayek, Friedrich von, 174 Health care: access to, 29, 146; democracy and, 175; free trade impact on, 152; Human Development Index inclusion of, 172; income and access to, 14; markets and, 157; property rights and, 174; race and, 122; social welfare spending on, 62, 64–65, 69–70, 82, 96; taxes and, 52; wage and benefit system and, 16, 20–21 Hedge funds, 112 Homestead Act, 124 Housing assistance, 73–74, 76, 78, 133 Human Development Index, 172 Humanism, 53, 77 Income: investment, 103–118; markets and, 143–157; racialized character of, 121–138; social welfare, 57–78; supply side economics and, 4–11; wage, 13–29. See also Universal Basic Income (UBI) Income tax: on corporations, 5–6, 42– 44; Donald Trump’s payment of, 33; income groups’ share of, 35– 37, 49–50; on investments, 39–41; state and local, 47–48; supply side economics and, 5–9; on wages and salaries, 5, 37–39. See also Capital gains tax; Corporate income tax; Earned Income Tax Credit (EITC)

200

Index

Indian Removal Act, 124 Inflation, 25, 104–107, 117 Inheritance tax. See Estate tax Invisible hand, 53, 143. See also Smith, Adam

Janus v. American Federation of State, County and Municipal Employees, 21–22 Jefferson, Thomas, 15, 34, 53, 124 Jobs: the American Dream and, 27; corporate welfare and, 86, 89–93, 99–100; creation of, 5–7, 40, 86, 152, 168; Earned Income Tax Credit and, 38; elimination of, 16– 17, 26, 91–93, 108, 110, 146, 152, 156, 167; Federal Reserve and, 104–107; financial markets impact on, 108; free markets and, 145–146, 152; free trade impact on, 23, 152– 154; Great Recession and, 110; guarantee of, 29; low-paying service sector, 6–7, 14, 16, 21, 26, 69, 167; manufacturing, 6, 167; public works, 168; racialized character of, 128–129, 131–133, 136, 138; shared, 168; supply side economics and, 4–10; technology and, 167; underemployment and, 167; unemployment insurance and, 65–67; Walmart, 155 Jobs, Steve, 40 John Paul II, Pope, 29 Johnson, President Lyndon, 70 Judeo-Christianity, 77 Keynesianism, 7, 166 King, Jr., Martin Luther, 15, 166 Krugman, Paul, 4 Laffer, Arthur, 5, 8–9 Laffer Curve, 5 Living wage, 13–15; arguments against, 23–28; capital flight as consequence of, 156; democracy and, 28–29; government assistance and, 20; human rights and, 15; low-wage occupations and, 13–14, 69; minimum wage and, 19; race and, 138; supply side economics and, 7; as a threat to profit, 104; universal basic income and, 168. See also Minimum wage; Wages

Living Wage Calculator, MIT, 13 Locke, John, 29 Markets: Adam Smith and, 53; concentrated, 148–151; corporate welfare and, 98; democracy and, 154–157; distributive justice and, 143–144; financial, 103–104, 107– 108, 111; freedom and, 144–148; government foundation for, 148; imprisoned policy as result of, 99, 116–118, 155–156; labor, 145; living wage and, 24; neoliberal ideology and, 143–148; power and, 143–157; public problems unaddressed by, 29; redistributive impact of, 143– 157; shorting of, 111–112. See also Free market; Free trade Marx, Karl, 29, 103 Maximum wage, 156. See also Living wage; Minimum wage; Wages McCain, John, 40–41 Meals on Wheels, 9 Medicaid, 20, 68–69, 75–77, 78 Medicare, 64–65; funding of, 41, 60– 61, 69; race and, 127–128; welfare spending and, 75–77 Meritocracy, 3, 9; affirmative action and, 129; in education, 129; justice and, 173; myth of, 27, 29, 45, 99; race and, 123; White privilege and, 137. See also American Dream Minimum wage: constrained choices from, 145–146; Danish, 24; earners’ demographics, 14, 26; employment effects of, 26; federal, 14, 19; increases to, 10; state, 19; policy regarding, 16, 19; surviving on, 78. See also Living wage; Maximum wage; Wages Mnuchin, Steven, 8, 9 Monetary policy, 104–107. See also Federal Reserve (the Fed) Musk, Elon, 18 NASDAQ, 107 National debt. See Debt, national Neoliberalism: and antitrust, 150; inequality as result of, 168; markets and, 143–144; plutocracy as result of, 175; supply side economics and, 11, 12; values of, 157, 166, 175; wages and benefits in, 18

Index New Deal, 77, 166, 168 North American Free Trade Agreement (NAFTA), 152–153 Obama, President Barack, 7, 9, 66, 110, 114 Occupations, 13–14, 16–17, 127, 167. See also Jobs Old-Age, Survivors, and Disability Insurance. See Social Security Oligarchy. See Plutocracy O’Reilly, Bill, 15

Payday lending, 113–115. See also Banking Payroll tax: and race, 128; US tax code provisions for, 41–42, 43, 49, 50; welfare policy and, 60, 63–65, 67 Pence, Vice-President Mike, 98 Pig principle, 157, 171 Plutocracy, 4, 53, 175 Popular sovereignty, 99, 154, 175–176 Poverty: blaming victims of, 15, 77; General Assistance and, 75; low wages as cause of, 16; Medicaid and, 68–69; President Trump’s response to, 78; racialized character of, 122, 125, 126, 129; rate, 2; Social Security and, 61; Supplemental Nutritional Assistance Program (SNAP) and, 70–71; tax policy and, 35; Temporary Assistance to Needy Families (TANF) and, 72; wealth as flip side of, 53; Women, Infant, and Children (WIC) and, 74; workfare and, 78 Power: of capital, 153; concentrations of, 144; corporate, 22, 99, 100, 148, 156; democratically accountable, 154–157; demographics of, 175; elite, 3, 168, 175; forms of, 146–147; labor, 105, 145, 153; markets and, 143–157; political, 4, 155, 175; property and, 146; public control of, 176; purchasing, 103, 112, 117, 167; racialized character of, 123; tax policy and, 53; union, 21–23, 28; wages determined by, 28–29 Producer sovereignty, 147. See also Consumer sovereignty Productivity: corporate welfare affect on, 87; inflation and, 25, 105; labor

201

share of, 6, 28–29; markets and, 143; unemployment and, 26; wages and, 17, 19, 169 Property tax, 35, 43–44, 47–48, 50–51, 97, 130 Public assistance. See Welfare Quantum Fund, 112 Race and racism, 121–138; American dream and, 27, 123, 129, 174; Black Lives Matter, 122, 135, 167; climate change and, 133–134; credit access, 113; criminal justice system, 134– 137; education and, 129–130; fiscal policy and, 126–128; housing and, 125–126; Jim Crow laws, 125–126, 134; land theft, 124–125; myths about welfare, 58; Reconstruction, 124, 126, 129; redlining, 131–132; segregation, 131–134; slavery, 123–124; socioeconomic class, 122–123; solutions to, 137–138; welfare and, 62 Reagan, President Ronald: deregulatory policy of, 108; neoliberalism and, 143; supply side economics and, 3, 6–8; tax policies of, 36–37; unions and, 21; war on drugs, 135; welfare policy of, 15, 58 Recessions, 66, 167, 169. See also Great Recession Redlining, 113, 132 Regulation: of banks, 104, 114; corporate power and, 156; corporate welfare and, 82; free trade and, 152–153; supply side economics and, 5, 9. See also Deregulation Republicans: Covid-19 pandemic response of, 10; Great Recession and, 9; minimum wage policies of, 17; right to work laws by, 22; and supply side economics, 3–4, 8–9, 17; tax policies of, 39, 42, 45, 49, 50, 78; welfare policies of, 57–58, 68, 71 Responsible Wealth campaign, 45 Right-to-work legislation. See Unions Romney, Mitt, 49 Ryan, Paul, 10 S&P 500 Index, 107

202

Index

Sales tax, 43, 46–47, 50, 87. See also Consumption tax Sanders, Bernie, 50–51 Savings and loan industry (S&L), 108–109 Securities and Exchange Commission (SEC), 98 Smith, Adam, 24, 53, 143–144, 173 SNAP. See Supplementary Nutritional Assistance Program Social Darwinism, 77, 166 Social Progress Indicator, 171–172. See also General Progress Indicator; Gross Domestic Product; Human Development Index Social Security, 59–64; distributive effects of, 75–77; General Assistance and, 74; Medicaid and, 68; payroll tax as funding source, 41; race and, 126–128 Social Security Trust Fund, 63, 73 Sovereignty. See Consumer sovereignty; Corporate sovereignty; Popular sovereignty; Producer sovereignty Stocks: concentrated ownership of, 6, 40–41, 107, 128; corporate buybacks of, 6, 43; dividends from, 6–7, 41, 43, 95; Great Recession and, 110; options of, 40, 44, 95; race and, 128 Superfund, 97–98 Supplemental Security Income, 72–73 Supplementary Nutritional Assistance Program (SNAP), 70– 71 Supply side economics, 1–11, 17, 117 Sustainability: ecological, 169–172; economic, 167–169; social, 166–167 TANF. See Temporary Assistance for Needy Families TARP. See Troubled Asset Relief Program Tax credits, 37–38; as corporate welfare, 83, 89, 92–93, 96; favoring upper-income taxpayers, 38; and mortgage interest deduction, 73; and Unemployment Insurance, 66. See also Earned Income Tax Credit (EITC) Tax Cuts and Jobs Act, 42–44 Tax deductions, 37, 47, 73, 94, 125, 128

Taxes, 33–53; basic human needs and, 174; corporate welfare and, 82–83, 86–99; Donald Trump’s personal liability for, 33, 36; effective rate of, 35, 49; expenditures, 58, 71, 83, 94– 96; federal, 37–47; government redistribution and, 3–4, 33–34; progressive vs. regressive, 10, 34– 37, 48, 50–53, 172; racialized character of, 127–128, 130, 132–134; state and local, 47–48; supply side economic policies on, 4–10, 17, 116. See also names of different kinds of taxes; Tax credits; Tax deductions; Tax loopholes; Tax expenditures Tax expenditures, 58, 71, 83, 94–96 Tax loopholes: corporate income tax and, 42–44; as corporate welfare, 83, 95; effective tax rate and, 35; favoring the wealthy, 33, 35–36, 38, 50; regressivity of, 50 Technology: corporate welfare and, 92; elimination of jobs by, 167; government-funded, 148; inequality and, 19, 163, 165; market concentration and, 150; productive investment in, 5–6, 96 Temporary Assistance for Needy Families (TANF), 71–72, 84. See also Aid to Families with Dependent Children (AFDC) Trickle-down economics. See Supply side economics Troubled Asset Relief Program (TARP), 82, 91, 110 Trump, President Donald: banking industry and, 114; Black Lives Matter and, 122; community development defunding by, 133; corporate welfare and, 96; Covid19 response by, 14; Federal Reserve and, 117; Fox News support of, 149; inherited wealth of, 27; poverty response by, 78; supply side economic policies of, 6–9, 17, 36, 42, 44, 69; tax returns of, 33, 35, 49; trade policy of, 94, 154; wealth tax advocacy by, 51; welfare policies of, 69–71, 93 UBI. See Universal Basic Income Underemployment, 145, 153, 167– 168. See also Unemployment

Index Unemployment: benefits, 14, 66–67; economic sustainability and, 168; free markets and, 145; free trade and, 154; Great Recession and, 66, 110; insurance, 65–67; natural rate of, 105; New Deal response to, 168; race and, 127, 136–137; rate, 66, 105, 117; structural, 67; tax, 65– 66; wages and, 17, 26; work requirements and, 78. See also Underemployment Unemployment insurance, 65–67, 76; Covid-19 relief and, 14; labor markets and, 145; race and, 127; workfare and, 78 Unions: decline of, 21–22, 52; free trade impact on, 153; inequality constrained by 10, 21–22, 28, 104; right-to-work legislation, 21–22; wages and, 16, 21, 28–29 United Auto Workers, 91 Universal Basic Income (UBI), 168 US Constitution, 173–174 US Export-Import Bank, 85, 92 US Foreign Agricultural Service, 85

Voodoo economics, 12. See also Supply side economics

Wages, 13–29, 164, 169, 172; corporate power and, 175; corporate welfare and, 82, 90, 92, 96; Federal Reserve impact on, 104–107, 116; Great Recession and, 109; market concentration impact on, 151, 155; Medicaid, 69; policymakers’ impact on, 19–23; prisoners’, 136; race and, 127; Social Security and, 60, 63; supply side economics and, 7, 117; taxes on, 37–50, 52; taxpayer subsidies of, 19–20; trade policy and, 152–153; unemployment insurance and, 65, 67; unpaid, 164, 169. See also Living wage; Minimum wage Wall Street, 13, 82, 84, 109–110, 117 Walmart: corporate power of, 147, 155; corporate welfare for, 83;

203

impact on small towns, 155; inflation and, 25; tax loopholes and, 44; taxpayer subsidies of, 20 War on crime, 135 War on drugs, 135, 136 War on poverty, 70, 78 Warren, Elizabeth, 50–51 Wealth: climate change and, 170; corporate welfare and, 58, 81, 86– 87, 94, 96; Covid-19 and, 163; economic growth and, 169; egalitarian distribution of, 164, 169, 172; elites’, 3, 168, 175; financial system impact on, 104, 106–107; Great Recession impact on, 110; maldistribution of, 1–3; markets and, 144, 148, 151, 153; opportunity and, 4; race and, 121– 129; supply side economics and, 4–10; taxes and, 4–5, 8–10, 33–53, 78, 116–117; unions and, 22; wages and, 13, 15–17, 21, 23, 28, 29; welfare policy and, 77 Wealth tax, 50–51, 104 Welfare, corporate. See Corporate welfare Welfare, 57–78; budget deficits and, 116; disparaging of recipients of, 15, 57–59, 67–68; means-tested programs, 59, 67–75, 82; other countries’ spending on, 24, 37; race and, 126–128; social insurance programs, 59–67; total cost of, 75– 76; Walmart and, 20. See also different social welfare programs Women, Infants, and Children (WIC), 74 Workers’ compensation. See Unemployment compensation Workfare, 59, 78 Works Progress Administration (WPA), 168 Zombie economics, 4, 87. See also Supply side economics; Voodoo economics

About the Book

One of the most durable myths of the US political economy is that we take from the rich and give to the poor— penalizing the rich for their hard work and rewarding the undeserving. Mark Mattern turns that story on its head. Documenting the everyday, institutionalized ways that income and wealth are transferred upward in the United States, Mattern shows how in fact the bottom subsidizes the top. His provocative analysis, describing in detail the processes and policy choices that systematically favor the rich, is both a tale of "Robin Hood in reverse" and a call for a more equitable, democratic political economy. Mark Mattern is professor in the Department of Politics and Global Citizenship at Baldwin-Wallace University.

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