Our Economic Outlook

Robert Reich recently presented an audio essay on NPR’s Marketplace in which he talked about dividing up the economic pie. “The American Economic Pie is growing,” he says, “at a solid pace, the odd thing is how it is sliced — a portion going to profits and a portion going to wages. The wage slice is smaller than it’s been 38 years and the corporate profit slice is larger than it has ever been.” He goes on to explain that this is not likely to change because workers have lost bargaining power and large corporations have at their disposal many tools to keep their profits high. And those things that keep the profits high are things that keep wages down or eliminate jobs. They continue to ship jobs overseas, not just manufacturing but now also white collar jobs, to search for the lowest labor cost, and because they have so much control in the economy due to their size and vertical and horizontal integration, they have inordinate influence. But Reich says wage earners are not likely to stand by for this obvious inequity forever. To rectify the problem, he recommends a reversal of tax policy; specifically lower taxes on wages and higher taxes on corporate profits and passive income.

A recent letter writer in the Northfield News attempted to explain the difference between my views and those of the extremist Republicans setting economic policy today. His primary error is his taking issue with my premise that the pie that is ‘economics’ is limited, because, as Galbraith notes in ‘Economics and the Public Purpose,’ any definition of economics addresses the scarcity of resources that confers value and the distribution of those resources. He is absolutely correct that it is government’s responsibility to provide the ‘ingredients,’ the resources, for each of us to build our own pies, and yet today, the government is taking these ‘ingredients’ away from many people and giving them to just a few. Many do not have the most basic resources, such as a good education, necessary to get that good job, health coverage necessary to provide basic care and protect against economic devastation brought on by illness. One of the most important ingredients that economic conservatives want the government to provide, along with unfettered access to natural resources, is cheap labor. This is provided in a number of ways, and the value of cheap labor should not be lost on voters, nor the tremendous economic influence that large corporations have had on government’s transfer of these ingredients and the immense gains they’ve realized. The current administration has steadfastly refused to raise the minimum wage; it allows corporations to outsource jobs to the lowest bidder no matter what corner of the world they are in, and have made it increasingly harder for unions to organize and have an influence on wage and bargaining issues.

Responsible corporations have a place in our economy, as do small businesses and public and non-profit ventures, but today many corporations have undue influence in our economy and on our government. Many have, as Attorney General Mike Hatch pointed out, lost touch with their public purpose. They often pursue the short-term interest of top management and the largest shareholders and do so to such an extreme that they ignore the interests of employees, small investors, community and our nation.

I believe that under the influence of the most powerful and privileged class, our government has been helping to divide the pie in favor of the richest few by providing tax cuts and policies that favor their interests and which are against the public interest. Our government is ignoring its responsibility to protect the people and the resources we all need, the ingredients we must have in order to have a sound and hopeful future. Is recognition of this truth divisive, as the letter writer claims? Is the divisive act the division of the pie? I believe it is time we recognized and reversed the trend of our current administration bestowing tremendous benefits on a privileged few.

This country was formed in resistance to rule by a privileged elite. I am motivated toward a return to our fundamental principles, seeking this end out of a sense of fairness and equity. We will not all be wealthy, of course, but we should live in a society where wealth can be accumulated. The question, however, is whether the government should allow or foster manipulation of that wealth to be used to lift up the powerful at the expense of every one else – and to that question, I answer that the wealth mutually gained must be used in a way that benefits all. By mutually gained wealth, I mean, it is an illusion that the wealthy are solely responsible for their wealth. Wealth is often conferred by inheritance or birthright, and is procured by investment of capital, labor and can be fertilized by government policies. Too often in recent times, the importance of labor as a multiplier of wealth has been undervalued. A quick study of wage decrease and job losses under the Bush administrations provides proof, and since the late nineties, Minnesota has been moving toward a similar regressive type of government. It is time for a change.


Americans’ incomes fell for two years
IRS data shows first-ever consecutive-year drop; loss of jobs blamed.
July 29, 2004: 12:59 PM EDT

NEW YORK (CNN/Money) – Americans’ overall income shrank for two consecutive years after stocks plunged in 2000, the first time that has effectively happened since the current tax system was put in place during World War II, according to a published report Thursday.
The New York Times, reporting data from the Internal Revenue Service, said gross income reported to the agency fell 5.1 percent to $6.0 trillion in 2002, the most recent year for which data is available, down from $6.35 trillion in 2000. Because of population growth, average income fell even more, by 5.7 percent, and adjusted for inflation the decline was 9.2 percent.
The paper said the decline was due to a combination of the big fall in the stock market and the loss of jobs and wages in well-paying industries as the recession started in 2001.
The paper said before the recent drop the last decline posted for even one year was 1953.
The drop in income has hit government tax collections — the paper said individual income taxes declined 18.8 percent between 2000 and 2002. Part of that was due to tax cuts passed in 2001.
The report said the sharpest drops were in both the number and the earnings of people with the highest incomes. Those with incomes of $10 million or more saw average income fall 22 percent, while the number of returns reporting incomes at that level fell 53 percent during the two year period.
Meanwhile the average income of those filing returns with incomes between $25,000 and $500,000 saw the average income little changed, somewhere between a 0.1 percent decline and a 0.2 percent gain, depending upon the income category, the Times said.

Middle class folks, which includes small business owners, small manufacturers, wage earners, farmers and many professionals, are hard working people who in general believe that given a good start in life, if we work hard and are careful we will succeed. The ‘given’ is a difficult part — they know a good education is important, for themselves and for society at large, but other than that, they don’t necessarily believe government intervention is a good thing. However, those who have the power to influence government through their lobbyists and their money know that government intervention can be used to benefit them. Whatever expenses they can get the government (each of us as taxpayers) to lower or to pay for them means an increase in their profits. With their influence, they have been able to reduce the share of taxes they pay and have shifted their burden to wage earners. It is no wonder that many voters are concerned when tax increases are in the air. For middle class folks, they are already being squeezed by low wages and the taxes and fees they already pay, and the thought of adding more to their burden is frightening. But the burdens can be reallocated and we can be far more progressive in our taxation formulas. It need not fall on the overburdened middle and lower classes.

When Ray Cox and other defenders of the ‘no new taxes policy’ say that the economy is getting better and that we are beyond the ‘9/11 down turn’ they miss a very important point. The fact is that the economy was taking a down turn even before 9/11, long before then, and was showing the same inequality Robert Reich talks about now. Our economic problems were not caused by 9/11, instead, the already serious and growing economic inequities were exacerbated by that tragedy. This is a consistent theme of my blog and of my campaign: If the economy is not improving for all of us, how can we claim there is an ‘improvement’ in the economy? If the economy is only improving for the most well off, and is severely hurting those least well off, how can we claim it is an ‘improvement?’ The economy is ‘ours,’ second only to the people as the foundation of our democracy – the economy must work for us all, and not just for a few.

Minnesotans want good jobs and they know the key to good jobs is good schools. They also know the tremendous bite health care costs are taking out of their wages. An improvement in the economic numbers will not improve our economic situation, will not provide more good jobs, good schools or health care unless we are willing to make some policy changes to correct past errors.

Some facts to consider about how Minnesota got in this mess:

1) The way the state funds our schools was changed so that the state general fund is paying for school budgets that were not part of its budget in the past. This was a major factor in the ’03 -’04 budget deficit that was not widely discussed. The stated goal of this change was to relieve property taxes, but in making this switch, and having to pay more for districts like Edina than it had in the past, the state forced counties and school districts to raise property taxes to make up for cuts the State imposed to pay for its deficit. Reversing this policy change alone could help provide funding to restore many cuts to healthcare recipients and nursing home residents who have unfairly borne the brunt of the deficit fix.

2) The health insurance rate increases we are seeing that are crippling our wage earner economy is not caused by overuse or misuse of the system, but is instead the result of an effort of insurance companies to recoup market losses from investments made by the health insurance company. It is not our responsibility to cover those losses – those losses should come out of the record high profits reported by these companies.

3) Reversing tax cuts given to the most wealthy in the years before the down turn would have more than made up for the losses in services to the most vulnerable and offered schools the funding they need to maintain necessary programs.

If we are serious about a positive vision for our state, if we really want to provide good jobs, good schools and good healthcare to all, we need to get serious about what we tell the voters. We need to lay out a plan to get us on the right track and we need to have the strength to stand behind it and do the work that will make it happen. I’m running for the legislature because I believe we can meet these basic needs, but only by, right now, making the right choices and making our economy work for both big and small business, for wage earners and managers, for every working person.

My opponent says, “I continue to have a positive outlook on the Minnesota economy and our Nation’s economy. We seem to be working hard producing goods and services—-and the workers are sending in taxes through their payrolls and through their personal spending. There are still some areas that need to be worked on, but as a whole, I believe we have turned the corner on the economic downturn brought on by the terrorist actions of September 11th.” Ray Cox is showing that he is out of touch with what most Minnesotans are experiencing and is misplacing blame for our economic mess on ‘September 11th’ when our economic problems are rooted in more fundamental causes. Adjusting the clutch and putting the top down to enjoy the breeze doesn’t help when you’re running out of gas and only 3 of 6 cylinders are firing.

I have been reading some great articles:

John Gunyou: A movement for rest of us

Published July 30, 2004

Moderate policies and rational discourse in the halls of government are rare. No moderates ever seem to write to the editor or call in to the ubiquitous talk shows … until now.

So listen up, all you pandering politicians. Set down your Ann Coulter coffee mugs and Al Franken falafel pans, and pay attention to a calm voice of reason. Here are three things we moderates want from you:

First of all, we want you to stop trying to solve all of our problems. If you can protect our jobs, we can pretty much take care of ourselves. We do not want to dismantle government like Rush does, but neither do we want a slew of new programs. We expect you to fix the ones we’re already paying for.

Second, we want our government to work well. We expect you to look after our health and safety, educate our children, and responsibly manage the price of our services. We know that taxes are not inherently evil, but we don’t want to pay for waste and mismanagement. We want to be able to trust you, feel good about what you’re doing, and get our money’s worth for our tax dollars.

And finally, we believe in equity. We want people to pay their fair share for the government services and privileges they receive. We do not want undeserving people to get a free ride, but we do want the truly needy to be cared for. We’re not really as heartless as Michael Moore makes us out to be.
© Copyright 2004 Star Tribune. All rights reserved.

Corporate taxes/Do something about dodgers

Published April 22, 2004

When corporate profits hit a record high, yet state corporate income tax receipts miss the forecasted mark by more than 13 percent in the last two months alone, something’s amiss in the way Minnesota taxes business.
Discovering what it is, and correcting this fundamental problem, must be high on the Legislature’s list this next year. The corporate income tax loopholes must be closed, and corporate taxes must produce revenue at the expected level, and taxes owed must be collected otherwise, the state will be in deeper fiscal water as the current budget period draws to a close next year. We cannot afford to give away tax revenue.

Top state officials puzzled over drop in business tax revenue
The Associated Press

ST. PAUL – Revenue from corporate taxes is surging in many other states as business after business reports improved earnings, but not in Minnesota and the state’s top moneymen want to know why.

It could be that Minnesota businesses are electronically sending hundreds of millions of dollars through shell corporations to Caribbean countries before instantly sending it back.

Or it could be that the companies are moving money through low-tax states to avoid corporate income taxes in Minnesota.

Legislative gridlock leaves cities guessing at budgets time


ST. PAUL (AP) – Setting budgets is never easy for the leaders of more than 640 Minnesota cities, but writing one for 2005 is especially difficult because the Legislature has failed to fix a simple glitch in a spending law.

Depending on how it eventually works out, $38.9 million that the 2003 Legislature intended for Minneapolis, St. Paul and hundreds of other cities statewide could go instead to 187 other municipalities, most of them suburbs. Or maybe not.

Lawmakers say property taxes on Range up 4.8%
Candi Walz
Mesabi Daily News
Last Updated: Thursday, April 15th, 2004 12:17:08 AM

ST. PAUL – Increasing property taxes, or funding city services with Local Government Aid? The day before the tax-filing deadline of April 15, Republicans and Democrats weighed in with their answers and thoughts on taxes.

Chairman of US Federal Reserve assures Congress wages will be kept low
By Joseph Kay and Barry Grey
26 July 2004

In his July 20 testimony before the Senate Banking Committee, US Federal Reserve Board Chairman Alan Greenspan revealed the ruthless class strategy of American big business, which is based on an unrelenting offensive against the wages and living standards of workers.

Signaling the central banking institution’s determination to head off any tendency toward significant wage increases for American workers, Greenspan downplayed the importance of soaring gas prices, which are taking an enormous toll on workers’ paychecks, while making it clear he was prepared to raise interest rates more sharply if signs emerged that unit labor costs were rising significantly.

The Fed chairman did not spell out the consequences of such a move for the jobs and living standards of American workers. He did not have to. It was well understood by the politicians seated across from him, and the Wall Street firms, corporate bosses and large investors to whom he was indirectly speaking. It would mean a new round of plant closures and layoffs-a development calculated to undermine any movement by workers to reverse an ongoing decline in overall family income.

That this was precisely what Corporate America wanted to hear was reflected in the surge in share values on Wall Street that followed Greenspan’s testimony.

So how do we get out of this mess? There some people with a lot of expertise who have been working on this and who have some specific ideas. I’ve blogged about a few of these before, and will get into this in greater detail in my next economic installment. In the meantime, you may want to look at Growth & Justice.

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