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The Middle-Class Agenda
Earlier this month, President Obama delivered his first unabashed 2012
campaign speech. Unlike his opponents, Mr. Obama acknowledged the ravages of
income equality, the hollowing out of the American middle class. There is
no hyperbole in the urgency he conveyed about “a make-or-break moment for
the middle class, and for all those who are fighting to get into the middle
class.”
The challenge for Mr. Obama is to translate the plight of the middle class
into an agenda for broad prosperity. Congress’s inability to cleanly extend
even emergency measures though 2012 — including the temporary payroll tax
cut and federal unemployment benefits — underscores the difficulty. The
alternative is continued decline.
Recent government data show that 100 million Americans, or about one in
three, are living in poverty or very close to it. Of 13.3 million unemployed
Americans now searching for work, 5.7 million have been looking for more
than six months, while millions more have given up altogether. Even a job is
no guarantee of middle-class security. The real median income of working-
age households has declined, from $61,600 in 2000 to $55,300 in 2010 — the
result of abysmally slow job growth even before the onset of the recession.
Economic growth alone, even if it accelerated, would not be enough to
restore the middle class. Mr. Obama refuted the Republican notion that
market forces alone can ensure broad prosperity, when the economic health of
American families also depends on government action.
It was a speech that called out for a plan. Here are the elements that
matter most:
CREATING GOOD JOBS Despite Republican obstructionism, Mr. Obama must
continue to offer stimulus bills that include spending for public works,
high-tech manufacturing and an infrastructure bank. He must stress that
obstruction costs jobs — the bill recently filibustered by Republicans
would have created an estimated 1.9 million jobs in 2012. The Republican
stance also endangers future prosperity by denying needed infrastructure
upgrades and making it likely that international competitors will outstrip
America in jobs and technology.
In particular, Mr. Obama needs to debunk the notion that job creation is at
odds with environmental protection. Republicans have portrayed opposition to
the Keystone XL oil pipeline as a job killer. The truth is, oil addiction
and the failure to invest in new energy sources will be far bigger job
killers. What’s needed is a plan to create millions of clean energy jobs
and to link those jobs to workers in fossil fuel industries who otherwise
would be displaced. The climate bill that died in 2010 would have begun that
transformation; the need to try again only becomes more pressing with each
passing year.
At the same time, Mr. Obama cannot ignore that most of the fast-growing
occupations in America are lower-paying service jobs, like home health care
and food service, in which it’s all but impossible to make a living. To
lift wages requires generous tax credits for low earners, a higher minimum
wage, and guaranteed health care so that wages are not consumed by medical
costs. Job training efforts must also focus on the service sector, helping
to build so-called career ladders, say, from home health aid to licensed
vocational nurse.
STOPPING FORECLOSURES In his Kansas speech, Mr. Obama said banks “should be
working to keep responsible homeowners in their homes.” That’s too weak.
The banks have never made an all-out effort to help homeowners and unless
compelled to do so, they never will, because, in many cases, they can make
more by foreclosing rather than by modifying troubled loans.
Federal agencies can keep working with some state attorneys general and try
to settle with banks over foreclosure abuses in exchange for a commitment
from them to modify some $20 billion worth of troubled loans, or they can
conduct a thorough federal investigation into the banks’ conduct during the
mortgage bubble, looking for a far bigger settlement. The market is beset
with $700 billion of negative equity; potential bank abuses are unexplored;
the public is demanding accountability. Mr. Obama should opt for a thorough
federal inquiry.
In the meantime, an antiforeclosure plan that is up to the scale of the
problem would include unrelenting political pressure for principal write-
downs of underwater loans, expanded refinancings for borrowers in high-rate
loans, and forbearance for unemployed homeowners.
REGULATING THE BANKS Mr. Obama said banks are fighting the Dodd-Frank reform
“every inch of the way.”
The question is what he will do to fight back. A good start would be for him
to tell the American public whether the law is capable of performing as
intended. Is he confident that a major bank on the verge of failure could be
successfully dismantled? Is he sure that risky bank trading will be
sufficiently curtailed? If he is not confident that the law can work as
intended, he must ensure better implementation or call for a revamp of the
statute itself.
He can also personally advance specific Dodd-Frank provisions. Republicans
are intent on destroying the new Consumer Financial Protection Bureau; Mr.
Obama should try to recess appoint his nominee to lead the bureau, Richard
Cordray, whom Republicans recently filibustered. Mr. Obama must make clear
that he supports a strong Dodd-Frank disclosure rule on the ratio of the pay
of chief executives to that of rank-and-file employees. Such disclosure is
crucial to changing the corporate norms that have allowed for unjustifiably
vast pay discrepancies.
RAISING TAXES, REDUCING THE DEFICIT Tax reform is essential. But there is no
way to build public consensus for broad reform without first reversing the
lavish tax breaks for the rich. In addition to letting the high-end Bush-era
tax cuts expire at the end of 2012, Mr. Obama could call for all forms of
income to be taxed at the same rates, rather than allowing lower rates for
investment income, which flows mostly to wealthy Americans. Income tax rates
also need to be adjusted at the top of the scale, so that the affluent, say
, couples with taxable income of $400,000 a year, are not paying the same
top rate as multimillionaires.
Mr. Obama should also drop his opposition to a financial transactions tax.
That stance may have made sense when the banks were reeling from the
financial crisis, but it is now at odds with a stated desire to rein in the
financial sector and raise needed revenue.
Mr. Obama has more than established his willingness to cut the deficit,
agreeing to spending cuts that, in fact, are too deep for the weak economy.
Now he needs to dominate the deficit debate, not by trying to meet
Republican demands for ever more spending cuts, but by explaining that more
cuts would undermine the recovery. In the near term, high-end tax increases
are a better way to control the deficit. They are less of a drag on economic
activity than broad tax increases or federal spending cuts.
More jobs. Fewer foreclosures. Less financial risk. Progressive taxation.
Those policies will give the middle class a fighting chance. But the list is
not exhaustive. The pillars of a healthy middle class also include public
education, Social Security, unions, child care, affirmative action and, not
least, campaign finance reform, since inequality is reinforced by the
political power of the wealthy. |
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