Rocky Anderson's Wealth & Income Disparity Solution

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The Challenge:

Since the 1970s, real wages have declined for the average American. This has happened while both worker productivity and management compensation have skyrocketed.  Although workers have become better at what they do, the benefits have accrued 100% to management and investors. Hence the ratio of CEO pay compared to average worker pay, at 28:1 in the early 1970s, now stands at between 185:1 to 325:1.

One of the key reasons for this is the drastic shift in power that has taken place from workers to management. The ability of manufacturers to shift production facilities abroad to cheaper locations, which really took off with the collapse of the Bretton Woods Agreement in 1971, has meant that management has an overwhelming amount of leverage over workers. Management has been able to ensure that it can keep remuneration for workers stagnant and funnel the benefits of enhanced worker performance solely to themselves and to shareholders.

This has entailed a ballooning of consumer debt, quintupling from 1995-2005, due to the inability of Americans to fund their lifestyles with declining incomes. This has in turn fuelled asset bubbles, such as the housing and stock market bubbles, which have proved so destructive to both the U.S. and the global economies. It has also weakened our ability to grow our way out of the current economic crisis – the main problem being the lack of aggregate demand, which can be traced to an anemic consumer base. Only by strengthening the overwhelming majority of American employees in relation to corporate management can we improve the lot of the American consumer and ensure a more robust economy that will be beneficial for all.

The Record of the Democratic and Republican Parties:

That the Republican Party is the party of big business barely needs any elaboration. It is openly in favor of unregulated, “free” markets (i.e. markets that favor the largest incumbent rather than fostering healthy competition), while simultaneously handing out subsidies and protectionist favors to their largest campaign donors.  It vigorously supports corporate interference in un-democratic elections (such as the previously illegal contributions found to be protected under the Constitution by a bare majority of an activist Supreme Court in Citizens United v. FEC).  It opposes measures that place concerns about human and environmental welfare above pursuit of profits, thereby driving the country and the planet into ecological distress.

The Republicans, however, are simply the more extreme wing of the Big Business Party, with the Democrats being the other wing. Both parties are reliant on huge, corrupting corporate donations to ensure they remain in office.  Thus the positions of both parties reflect big business – not the American people – as their key constituency.

President Obama has illustrated this very clearly. As President, he has surrounded himself with members of the “1%” – i.e. people who would ensure that the interests of major corporations and Wall Street banks are going to be safeguarded. Senior positions for figures such as Larry Summers, Michael Froman and William Daley were merely a recognition of where his financing was coming from, and thus who his policies were going to favor. Three out of his top seven campaign contributors in 2008 were investment banks (Goldman Sachs, JP Morgan Chase, and Citigroup).  Sadly for the American people, he staffed his administration with people who represented their interests.[1] While campaigning for President in 2008, he repeatedly made the point that one can’t expect different results with the same people.  He himself has fallen afoul of this, surrounding himself with many of the architects of the financial crisis as he was supposed to be fixing it.

No meaningful action has been taken to restrain the runaway disparity between management compensation and workers’ pay. There have been no substantive measures taken to restrain CEO compensation, no measures taken to restrict outrageous financial sector bonuses – one of the key reasons for the credit crunch – and nothing done to strengthen the bargaining position of working people.  President Obama’s rhetoric has been tough on the 1%, but when it comes down to actual policy, his words have proved meaningless. He stated in his book The Audacity of Hope his support for the notion that “In America, money is how we keep score.” Though wealth is not necessarily to be vilified, regarding the wealthy as your primary constituents when the poor are suffering the most is morally reprehensible, and reflective of a President who has the interests of the very rich, rather than the middle class and the poor, at heart.

In “The Audacity of Hope”, Obama also refers to the “intoxicating danger in the idea of equality.” His lack of regard for equality and social mobility has been reflected in his policies – and lack of policies – regarding wealth inequality.

Rocky Anderson’s Approach Toward Solutions

Resolving such a huge issue involves combining numerous elements of policy. However it is the underlying principle of Rocky’s campaign that the country needs to be run for all Americans, not just the wealthy elites.  The reduction in income and wealth disparity will be the outcome of his broad policy platform. Some of the key issues for which President Anderson would advocate, are as follows:

  1. Strengthening labor laws. American workers need to have more power so they can get a fair shake in the workplace. A major assault on unions is taking place in parts of the country, as well as a decline in unionization rates, especially in the private sector. Laws such as Right To Work weaken union bargaining power.  Union organization procedures need to be enhanced and simplified, not weakened and complicated. An Anderson administration would provide strong leadership to ensure that collective bargaining rights, such as those under attack recently in Wisconsin, are fully protected and improved. Further, the federal minimum wage, which has declined by 30% in real terms since the late 1960s, needs to be increased. These will be key mechanisms in ensuring that the benefits of increased employee productivity accrue to the people responsible for them – the employees – and not just the management and investors. This will stop and reverse the decline in real wages experienced by working people since the 1970s.
  2. Tax incentives for local manufacturers. The US cannot remain an economy dominated by the financial sector if it wishes to reduce income inequality. We need as much as possible to bring manufacturing, and the jobs that come with it, back home. The U.S. is the world’s largest market, and has the most skilled labor force. When this is combined with the world leadership of the U.S. high-tech sector, it is clear that we need to enact policies that stimulate high-tech manufacturing in this country. To facilitate this, the Anderson administration will push to offer tax incentives for companies that keep their manufacturing facilities in the US; it will provide subsidies for high-tech start-ups to support the private sector in bearing risk; and it will prioritize financial assistance for university students looking to pursue postgraduate degrees in engineering, physics, computer science, and related fields.
  3. Progressive taxation. During what is generally referred to as “The Golden Age of Capitalism” in this country for the two decades after World War II, the top incremental tax rate hovered between 70 and 90%.  Now, because of the impact of corrupting money in our government, the thought of bringing the top marginal tax rate up to the 40% mark spooks policy makers. An Anderson administration will recognize that since money has a diminishing marginal utility, and since the wealthy are more capable of investing more in the country that has afforded them extraordinary opportunities, higher tax rates on people earning more money is fair and moral. This includes the capital gains tax. The gap between capital gains and ordinary income tax rates is one key factor in perpetuating income inequality because the overwhelming majority of capital gains accrue to the wealthy. Eliminating such disparities in taxation would be a key focus of Rocky’s administration.
  4. Promoting fair trade. Our responsibilities for equality and human rights don’t stop at our borders. By being lenient in the conditions that we attach to trade agreements with other countries, we ensure lives of misery for millions of workers who make the products we use every day. Such leniency also creates an unequal playing field, to the detriment of U.S. workers and those who employ them.  An Anderson administration would press for enhanced stringency in worker rights and environmental protections with any country that wishes to sell its products to us, including minimum wage requirements, a decent limit on working hours, and reduced carbon emissions. In this way we can ensure fairness and equality for American and foreign workers, as well as protecting the planet at the same time.
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Steve Rasmussen commented 2013-01-07 13:40:24 -0700 · Flag
d) The entrenched lobbyists in DC that made sure our elected officials would continue to back points a,b, and c below.
Randall Burns commented 2012-10-26 11:49:39 -0600 · Flag
Just so folks get it : since Reagan got eleced the majority of all wealth accumulated in the USA has been among the top 1% of wealth holders. There are three basic reasons for this :
a) the Reagan/Bush tax cuts
b) bad trade deals
c) expansion of immigration giving lower labor costs to the wealthy.

Trickle up was far greater than any of my professors at U of Chicago predicted it would be. Raising low end income/payroll taxes would be politically hard, but over 70% of the American public would favor tax increases that fall squarely on the top 1%.
Randall Burns commented 2012-10-26 11:45:47 -0600 · Flag
One huge omission in this paper: there is no mention of taxes on assets or net worth. That most raising income taxes can really do is to tax folks getting wealthy-or who have poor financial planning. Income taxes do not touch assets in offshore tax havens, and do rather litte to touch entrenched wealth. Ralph Nader endorsed taxation of assets at the level of over $5 Million per family-that squarely falls on the upper 1% of wealth holders who have been the big beneficiaries of tax cuts.

Ima also has a good point-we need a humane immigration policy-but we cannot have one that forces US workers to pay the price for providing the rich cheaper labor supplies
Ima Person commented 2012-08-17 09:53:18 -0600 · Flag
You won’t read it on this site, but Anderson supports citizenship for illegal migrants. See: ontheissues.org. The influx of 20 million illegal migrants following the 1986 amnesty has been a primary driver of falling wages, shrinking union memberships and increasing income disparity over the past 25 years. As famed Latino labor organizer Cesar Chavez preached back in the day, wages will never rise and American workers will never prosper as long as employers have access to a limitless supply of cheap foreign labor, and that is exactly what another round of citizenship for illegals will ensure.
Ted Andromidas commented 2012-06-25 09:16:18 -0600 · Flag
Since I am sure you support the reinstating of Glass-Steagall, could you be more visible about that? In my mind, it is a commitment to get control of Wall Street and banking that is critical to any successful economic program.
Jerry Scott commented 2012-06-09 20:47:41 -0600 · Flag
Sara, My understanding of VAT is that it isn’t really a sales tax. I think the tax is based on the difference between the acquisition cost and the sales price, not solely on the sales price, as it would be if it was a sales tax. That makes it a cost of doing business, similar to profit and overhead, which are considered in the pricing strategy that produces the maximum profit at varying price/volume combinations. Thus, it seems more like an income tax than a sales tax. And income taxes are not paid by buyers because they don’t change how much a buyer is willing to pay.
Sara Elizabeth commented 2012-06-09 08:41:49 -0600 · Flag
Some think tax reform can be done just by cleaning up the tax exemptions in the income tax code, some think a small VAT is needed to broaden the base to get the corporate rates lower (like the one Rep. Ryan supported), and really low individual tax rates can certainly be accomplished with the nuclear option of tax reform – the net wealth tax (that you never heard of). Why

From a social science perspective Washington’s lack of serious study of “all” tax reform options is unconscionable. Given the scope and magnitude of our economic malaise, this scholarship should be pushed like the 1939 Manhattan Project. Instead, President Obama appointed the Simpson-Bowles Commission but they were not permitted to consider a VAT or net wealth tax. From a political perspective however, it is understandable why the leadership of both parties might want to avoid documenting the unintended consequences of their respective failed approaches.

When the economy is askew, Democrats see the wisdom of creating better consumers (and votes) by borrowing money for entitlement programs which do not create sustainable jobs. Republicans see the wisdom of lowering the tax rates and other tax expenditures (instead of direct spending) to encourage investment by business (even without a solid consumer base). The tax incentives (“loopholes”) yield little because there are few consumers (although a few businesses may be able to export). At least businesses are able to profit (and continue political contributions) during the economic downturn. The tax expenditures also keep many business going that should fail for the greater good of making their competitors stronger (rather than making all a little weaker).

In years past, the invisible hand of the market (whatever that really is), caused the economy to recover with, or is spite of, the partisan assistance and the basic monetary policy adjustments by the Federal Reserve. The old economic fixes no longer work due to a few social and tax code changes that began about 40 years ago.

1. The steady entry of women into the labor force has supplied business with quality workers and kept salaries low.
2. Family planning and abortion have reduced the sheer number of consumers by over 50,000,000 with negative improvement in the consumer confidence of most families.
3. Tax exempt retirement plans have slowed the transfer of wealth to the top but add nothing to much needed consumer spending (because IRA and 401k money cannot be withdrawn without penalty).
4. Elimination of the tax deduction for interest on consumer loans has made borrowing more expensive and obviously reduced consumer spending.
5. All businesses have been weakened by government subsidy instead of letting the weak fail and letting the market strengthen the survivors. (Only the best of the best can export in today’s weak global economy).
6. In total, the regressive payroll taxes and the income tax expenditures (a/k/a “loopholes”) combine to drain the middle class of about $2 trillion dollars a year – most of which has simply been redistributed to the well-to-do over the last 20 years. [The tax code, and not the skill of the business entrepreneurs, can account for almost all of the substantial individual wealth held by America’s millionaires].

A consumption tax is regressive and will not heal consumers, even though a small VAT is admittedly an optimal means of fairly taxing business (and used by every developed country in the world except the arrogant USA). Economic recovery requires a net wealth tax – the nuclear option in tax reform (efficient, fair, powerful [i.e. $55 trillion base] and controversial) as an essential component. In one sentence:

Tax individual and corporate income at a flat 8% rate (with no deductions, credits or loopholes), tax individual net wealth at 2% (excluding $15,000 cash and retirement funds) and impose a 4% Value Added Sales Tax (VAT) on business.

The 2-4-8 Tax Blend has the lowest rates and will produce about $500 billion more than current federal revenue [around 18.5% of GDP] with no need for payroll, estate, and capital gains taxes or deferral of foreign income. A typical family would have an after tax take home boost of about $641 per month. An individual earning $61,500 (paying 30% in income and payroll taxes) would bring home more than $1,000 in additional cash each month. The economy would recover quickly and remain stable.

Eugene Patrick Devany, JD, MPA
Jerry Scott commented 2012-05-10 23:55:33 -0600 · Flag
Good ideas, but weak and non-comprehensive. The high tech industry won’t provide enough work, and not all workers have the intellectual ability that would be needed. Read the books, White House Burning and Thirteen Bankers, to up your game. It is unclear how far you would go with your populist stances. Are you calling for the return of the 70 – 90% rates, without their substantial adjustments, or just enough to lower the debt over the next generation to a viable level, while maintaining the social safety net, Medicare, and social security, or would you include improving the infrastructure to handle business and human needs in the coming century? Would you level the international playing field by eliminating China’s 40% undervaluing of their currency, as well as leveling the working conditions and environmental standards? How would you justify the changes to the WTO, and with prior treaties? Since the world financial system is at risk due to the E.U., IMF, and "to big to fail banks,” while congress and Obama are busily dismantling the weak Dodd/Frank law, how would you stabilize the monetary system, an issue the next President may well face?
C. Aaron Swisher commented 2012-04-30 10:30:33 -0600 · Flag
Wow, Dale, you would really like the book “Resuscitating America”. It has a specific economic plan that runs along the same lines of what you are saying.
Dale Copps commented 2012-04-29 06:23:30 -0600 · Flag
I am not sure private-sector union membership (now below 7%) isn’t a dead issue and that union organizing as we know it isn’t a dinosaur. Also, the genie of global manufacturing is out of a bottle we can probably never get it back into, though I support your stand requiring a level playing field in labor and environmental protections.

The business of employment in general needs a new paradigm.

I would like to see a candidate espousing the solution I have posed on my blog, All Together Now, at The Business of America Is Work (http://alltogethernow.org/showitem.php?currid=427), A New American Vision (http://alltogethernow.org/showitem.php?currid=421) and other places: Assure every adult an employment opportunity at a living wage, then dismantle the expensive, ineffective, and humiliating social “safety net” programs embodied in the alphabet soup of WIC, TANF, UI, CHIP, as well as Medicaid and all other such programs. These putative ameliorations of poverty are in reality means of maintaining the status quo, including retaining high unemployment in order to keep wages down.

Let’s assert that people need to work, for their self-esteem, for their bread, and for the purpose of taking their rightful and responsible place in society. Then, let’s make it possible for them to do so, at a living wage, and end poverty overnight. Instead of nipping away at the top 1%, to wrest tidbits of their income in tax reform, let’s set a solid floor for all Americans. As FDR said, “The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have too little.” His cousin T.R. said much the same thing: “This country will not be a permanently good place for any of us to live in unless we make it a reasonably good place for all of us to live in.” This program accomplishes these goals.

We need disincentives (and tax code reform) for corporations failing to pay their share of income tax because they are hiding behind foreign registration, plants, etc. We need this more than we need incentives for manufacturers to bring manufacturing back home (which may not be possible for most manufacturing regardless of the incentives).
Rebecca Lindsey commented 2012-04-15 12:12:16 -0600 · Flag
I like this policy a lot. My concern is that even if Rocky gets elected how is he going to be able to get Congress to agree to this policy (or any of the other policies stated on this website. I fear he will face the same deadlock we’ve seen in Congress over the past 4 years! I’d be interested in his thoughts on this dilemma.
C. Aaron Swisher commented 2012-03-14 15:01:39 -0600 · Flag
This sounds good! Rocky should read the book “Resuscitating America – An Independent Voter’s Guide to Restoring the American Dream.” It contains a comprehensive economic proposal that would not only revive the economy and balance the budget, but help us to solve our energy and environmental problems.
Rocky Anderson (Admin) published this page in Issues and Solutions 2012-02-23 13:02:58 -0700