John Edward, a resident of Chelmsford who earned his master’s degree at UMass Lowell and is an adjunct professor of economics at Bentley University, has previously contributed columns urging readers to vote NO on Question 1, Question 2 and Question 3. Today he preemptively discusses who stands to win and who stands to lose in this Tuesday’s election:
By the time you read this, the election results may be in and you will know who won. I wrote this column before the election confident in knowing who would lose.
A few months ago, I met with a local elected official to discuss his position on a specific issue. When I pointed out problems his policy would cause for veterans, he responded by offering an exemption for veterans. When I described the negative impact his policy would have on some senior citizens, he immediately suggested an exclusion for senior citizens. Then I explained how his policy would harm low-income families. He had nothing to say.
Later that day I described my exchange with the politician to a friend. The response was – duh, veterans and seniors vote. While I considered this a cynical perspective, I had to admit there was some truth to it. Not only do low-income earners vote in lower numbers, they do not have the capacity to form powerful lobbies or raise big money.
When Paul Tsongas was running for President, he referred to candidate Bill Clinton as a “pander bear.” It was meant as criticism. Now it seems as though candidates believe pandering is a required strategy when running for office.
A focal economic issue at the national level is what to do about the tax cuts passed by President George W. Bush that expire at the end of this year. It became a litmus test to establish a candidate’s credentials. Most candidates fell into one of two camps. Either they supported “middle class” tax cuts but opposed the idea of extending the cuts for the “very wealthy,” or they wanted everyone to get the tax cut.
How can individuals making $200,000 or families making $250,000 be middle class? President Obama has proposed extending the tax cuts all the way up to those income levels. Based on U.S. Census data from 2009, households fall into the following income classes:
– Lowest fifth: have incomes up to $20,450
– Next to lowest: incomes between $20,450 and $38,530
– Middle fifth: $38,530 – $61,800
– Next to highest: $61,800 – $100,000
– Highest fifth: over $100,000
The top 5 percent of households have $180,000 or more in income.
Allowing the tax cuts to expire for incomes above the proposed levels would only affect the top 2.5 percent of income earners. The so-called middle class tax cuts would benefit people who are really upper class.
Inequality in the United States is greater than it ever has been. Taxpayers in the upper class may not feel wealthy because they are so far behind the super wealthy. An extensive academic study using 2007 tax return data showed the top 1 percent of households made almost 25 percent of all income while reporting earnings of $400,000 or more. Back in the 1970s, the same group made only 9 percent of all income.
The super wealthy have in turn fallen way behind the super-duper wealthy. The top .01 percent made more than ten million dollars, and some made a lot more. That group earned less than 2 percent of annual income for the entire period between World War II and the “Reagan revolution.” Now they make 6 percent of income.
Most households in the highest fifth can afford a modest increase in taxes. If the goal is to promote economic growth, tax cuts for the wealthy are not effective. If the objective is fairness, a progressive income tax is necessary to offset regressive taxes like social security and state and local taxes.
However, those are not winning arguments because the best way to win an election is to pander by proclaiming commitment to the middle class. Candidates pledge their allegiance to fight for “working families.” If they want to sound like a populist, they will say they stand up for Main Street, not Wall Street.
Meanwhile, average incomes for the lowest fifth have decreased by 4 percent in the last two decades. Over the same period, the top 5 percent of income earners enjoyed a 73 percent increase. Many low-income earners buy into the myth that class mobility is easy in the United States even though public policy has eroded those opportunities.
In Massachusetts, we had ballot questions and races that focused on economic issues. Taxes were at the forefront. Tax policy gives candidates an opportunity to burnish their credentials with the middle class – as broadly defined by the candidates, and the media.
On state taxes, candidates either took the side of the overly burdened taxpayer, or the overly burdened budget. Either we need to cut tax rates now, or we have to wait until the economy recovers and then cut taxes.
Some taxpayers are burdened; some taxpayers are not. Some people can absorb cuts to state and local budgets, others cannot.
The candidates for Governor pandered to the middle class by proclaiming at least their desire to lower taxes. Did you hear any of the candidates talking about how regressive taxes are in Massachusetts? Did any of them mention the latest analysis by the Institute on Taxation and Economic Policy that shows the wealthiest people in our Commonwealth pay state and local taxes at only half the rate of the bottom half of income earners?
Well, actually, one candidate did talk about it – Jill Stein. She did not win the election. Those who aspire to be in the middle class, those who are most in need of more effective public policy, were the big losers.
There is a better way to construct economic policy. I will discuss that in my next column.