How Democrats Can Become Relevant Again (And Rescue The Nation While They're At It)

Republicans offered Democrats two more weeks before doomsday. Democrats countered with four. Republicans held their ground. Democrats agreed to two.

This is what passes for compromise in our nation’s capital.

Democrats have become irrelevant. If they want to become relevant again they have to connect the dots: The explosion of income and wealth among America’s super-rich, the dramatic drop in their tax rates, consequential devastating budget squeezes in Washington and in state capitols, and the slashing of public services for the middle class and the poor.

It is not a complicated story. Begin with what’s happened to the typical American. For 30 years his or her wage has been stagnant. Today’s typical 30-year-old male (if he has a job) is earning same as a 30-year-old male earned three decades ago, if you control for inflation. (Although women are doing better than they did 30 years ago, their wages still trail men’s.)

The bottom 90 per cent of Americans now earn, on average, only about $280 more per year than they did 30 years ago. That’s less than a 1 per cent gain over more than a third of a century. Families are doing somewhat better but that’s only because so many families now have to rely on two incomes.

But wait. The American economy is more than twice as large now as it was 30 years ago. So where did the money go? To the top. The richest 1 per cent’s share of national has doubled – from around 9 per cent in 1977 to over 20 per cent now. The richest one-tenth of 1 per cent’s share has tripled. The 150,000 households that comprise the top one-tenth of one per cent now earn as much as the bottom 120 million put together.

Given this explosion of income at the top you might think our tax system would demand a larger share from them. But you’d be wrong. You’re not taking account of the power of the super rich. As income and wealth have risen to the top, so has political power. As a result, their taxes have plummeted.

From the 1940s until 1980, the tax rate on the highest earners in America was 70 per cent or higher. In the 1950s, it was 91 per cent. Even if you include deductions and credits, the rich were paying a far higher share of their income than at any time since.

Under Ronald Reagan the top rate dropped to 28 per cent. Under Bill Clinton it rose to 39 per cent and then under George W. Bush dropped to 36 per cent. As you recall, Republicans have managed to keep it there. Their avowed aim is to keep it there permanently.

Meanwhile, estate taxes (which hit only the top 2 per cent) have been slashed, as have taxes on capital gains – which comprise most of the income of the super rich. In the late 1970s, capital gains were taxed at well over 35 per cent. Under Bill Clinton, the rate on capital gains was down to 20 per cent. Now it’s 15 per cent.

So who’s going to foot the bill for everything we need? Even before the Great Recession, the middle class’s share of the nation’s total income had shrunk. Yet their tax burden had grown. They were paying a bigger chunk of their incomes in payroll taxes, sales taxes, and property taxes than decades before.

Then came the Great Recession – and with it, lower tax revenues. The federal and state governments are squeezed. Obviously the middle class can’t pay more in taxes. But because the Democrats seem to lack the intestinal fortitude to suggest the obvious – that taxes need to be raised on the super rich – we’re left with a mess.

Teachers are being fired, Pell grants for the poor are being slashed, energy assistance for the needy is disappearing, other vital public services shriveling. Regulatory agencies don’t have the budgets to pay the people they need to enforce the law. Even if it wanted to the Securities and Exchange Commission couldn’t police Wall Street.

All of which is precisely where Republicans want the nation to be. It sets them up perfectly to blame government, blame public employees, blame unionized workers. It lets them pit workers against one another, divide the Democratic base, and promote the false idea that we’re in a giant zero-sum game and the nation can’t afford to do more.

It diverts attention from what’s happened at the top – so no one sees how well CEOs and Wall Street bankers are doing again, no one pays attention to the paybacks and tax giveaways engineered by their Republican patrons, and no one focuses on the tide of money flowing from the likes of Charles and David Koch into Republican coffers.  

Where are the Democrats? Shuffling their feet, looking at the floor. “Please oh please give us four weeks before you shut us down,” they ask. “No,” say the Republicans, “you’ll get only two.” “Well, alright then,” say the Democrats.

Here’s what Democrats should be saying:

Hike taxes on the super-rich. Reform the tax code to create more brackets at the top, with higher rates for millionaires and billionaires. Absurdly, the top bracket is now set at $375,000 with a tax rate of 35 per cent; the second-highest bracket, at 33 per cent, starts at $172,000 for individuals. But the big money is way higher.

Moreover, the source of income shouldn’t matter – salary, wages, capital gains, other unearned income – all should be treated the same. There’s no reason to reward speculators. (Don’t penalise true entrepreneurs, though. If they’re owners who have held their assets for at least 20 years, keep their capital gains low.)

And while we’re at it, raise the ceiling on income subject to Social Security taxes. And bring back the estate tax.

Do this and we can afford to do what we need to do as a nation. Do this and you prevent Republicans from setting the working middle class against itself. Do this and you restore some balance to a distribution of income and wealth that’s now dangerously out of whack.

Do this, Democrats, and you have a chance of being relevant again.

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