© Hedrick Smith 2012
The following is adapted from Who Stole the American Dream?
Over the past three decades, we have fallen from being the envy of the world, with the most affluent middle class of any place on Earth, to losing our title as “the land of opportunity.” The way we have responded with our New Economy has put the American middle class in an ever-tightening financial squeeze, raising protests from both left and right.
Restoring the American Dream will not be quick or simple. We have a long-term structural jobs problem that demands new thinking and an ambitious new economic agenda.
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Here are 10 steps for reclaiming the American Dream:
Step 1: Infrastructure Jobs to Compete Better A new public-private partnership to modernize America’s outdated transportation networks could create 5 million jobs — and maybe many more — with major investments over the next decade.
Not only do we have 69,000 structurally deficient bridges, but our national rail network has such serious bottlenecks that it takes a freight train longer to get through the city of Chicago than it does to go from Chicago to Los Angeles. Our aviation control system is so outdated and overloaded that the Federal Aviation Administration predicts it “will reach total gridlock by 2015” unless it is urgently modernized. Our ports are overloaded and our highways are clogged.
Leaders from both parties as well as business-oriented task forces advocate responding to this challenge with a national infrastructure bank to spark the financing of a 10-year plan to improve our ports, airports, and commercial and commuter rail systems, as well as our bridges and highways.
As a parallel move, former AT&T Broadband CEO Leo Hindery, Jr., and United Steelworkers President Leo Gerard have proposed that the government provide money to put 5 million young people to work on modest infrastructure projects, especially in urban areas. A youth jobs program, similar to the New Deal Civilian Conservation Corps, they assert, would not only reduce the much higher than average unemployment rates among young people, but reduce the risk of idled youth turning to crime.
Step 2: Push Innovation, Science and High-Tech Research It’s time for a major new national commitment to rebuild America’s capacity to out-invent and out-innovate the world.
Despite breakthroughs by such companies as Apple and Google, the United States has slipped in innovation, which has long been America’s bedrock advantage in the world.
Scientists, educators and corporate leaders support the National Academy of Sciences’ finding that it will take dramatically expanded government financing for the United States to bounce back in the R&D race.
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Step 3: Generate a Manufacturing Renaissance From 2001 to 2011, U.S. employment in manufacturing fell from 17.2 million to 11.7 million and more than 59,000 factories were shut down. The damage was even wider because of the ripple effect. Each job lost in manufacturing cut 2.5 other jobs in the rest of the economy.
A manufacturing renaissance is essential to America’s economic growth, but it is a tough challenge. Rebuilding our industrial base means being sharp enough to convert American innovations into American-based production for U.S. jobs and that requires new government initiatives and public-private partnerships.
One major change in government policy — and in the actions of American consumers — could bolster U.S. manufacturing: Buy American. Many in business urge that state and federal governments tighten the “Buy American” requirements for government contracts, consistent with U.S. trade agreements.
Step 4: Make the Income Tax Code Fairer The U.S. income tax code must be rebalanced to reduce its heavy tilt in favor of the super-rich.
Simplifying the tax code will make it easier to enforce. So many exotic tax shelters have been invented by ingenious tax lawyers and accountants to reduce the taxes of the super-rich that former IRS commissioner Charles Rossotti, a Republican businessman, estimated the tax loss to illegitimate tax evasions at $250 billion to $350 billion a year. As a result, Rossotti told me, honest taxpayers have to pay 15 percent more in their taxes.
But the simplest, broadest tax reform to achieve a more level economic playing field would be to end the low 15 percent capital gains tax rate and to tax investment gains at the same rate as wages and salaries.
Step 5: Fix the Corporate Tax Code Lowering the corporate tax rate and closing loopholes would discourage U.S. firms from offshoring jobs and reward companies that hire at home.
While the U.S. corporate tax rate is one of the highest in the world, most U.S. multinationals pay far less than the official 35 percent rate. Ones with large overseas operations often pay very low U.S. taxes or none at all.
Pro-business conservatives want to lower the maximum corporate tax rate from 35 percent to 25 percent, enabling companies operating inside America to expand and hire. To balance such a tax reduction, pro-jobs progressives want to close the $1.2 trillion in corporate tax loopholes.
Step 6: Push China to Live Up to Fair Trade Economists estimate that strong action by the United States and other countries to combat China’s unfair trade practices and rebalance global trade could generate 4 million jobs in the United States.
Confronting China is not easy. International economists suggest the best way to move China and other Asian countries on the currency issue is through global negotiations on rebalancing world trade. The World Trade Organization ruled against China’s unfair trade policies in early 2012 and ordered Beijing to end those policies, a ruling that offers precedent for future cases.
In the meantime, it is essential for Congress to finance the retraining of Americans thrown out of work when trade with China and other low-cost countries wipes out their jobs.
Step 7: Save on War and Weapons Cutting spending on wars overseas and reducing the Pentagon budget by $1 trillion over the next decade would generate funds for a domestic Marshall Plan and underwrite a middle-class agenda.
Some military advocates oppose a $1 trillion overall cutback, protesting that it would endanger the nation. But former Pentagon officials, like Assistant Defense Secretary Lawrence Korb, disagree and assert that such a cut would not jeopardize national security.
Step 8: Fix Housing and Protect Safety Net Programs Six million families have been foreclosed out of their homes and 22 million more are trapped in homes that are “under water” — worth less than their mortgages. Arranging massive refinancing of millions of underwater homes would help get the economy moving and strengthen the nation’s safety net programs, especially Social Security and Medicare.
Letting these borrowers benefit from today’s low interest rates would give them more cash to spend. But banks won’t approve loans for more than the value of the house and government-backed enterprises, like Fannie Mae and Freddie Mac, have balked at writing down loans they have guaranteed in the past.
Smart economists have suggested multiple ways to break the housing logjam. For example, Glenn Hubbard, former chief economic adviser to President George W. Bush, has urged Fannie Mae and Freddie Mac to reduce loan balances on some of the homes now under water and to rewrite their rules so that up to 10 million homeowners can qualify for refinancing at lower rates.
Equally important are steps to protect and strengthen Social Security and Medicare. The easiest way is to remove the income cap on the payroll tax. Ordinary employees pay a 7.65 percent payroll tax to finance Social Security and Medicare, but income over $106,800 is exempt from this tax. Removing that tax cap would go a long way toward solving the funding shortfall for Social Security and Medicare.
Finally, as long as we claim to be a “land of opportunity,” the United States must support the economic ladder for the 60 million in America’s “aspiring middle class” — the hardworking poor who depend on such safety net programs as Medicaid and food stamps. Without programs like those, the chances for rising into the middle class would almost disappear.
Step 9: Rebuild the Political Center Regenerating the centrist core of American politics, by rejecting extremist candidates in both parties and by opening up our political process in every state, will give more influence to moderate and independent voters.
Americans Elect is the most ambitious effort to promote a bipartisan middle ground in the presidential election: It would bypass the Republican and Democratic nominating conventions by offering registered voters a forum to nominate their own presidential candidate via the Internet, with the proviso that whoever is chosen as presidential nominee must select a running mate from the opposite party.
Third Way, a think tank, has a more focused and practical agenda. Its leaders want to open primaries to all voters and turn over the redrawing of congressional district lines to nonpartisan commissions.
Step 10: Mobilize the Middle Class The only sure way to alter today’s patently unequal democracy is for average Americans to mobilize politically. If enough of them demand action from Congress and the White House, politicians will get the message and respond.
What’s needed now is an army of volunteers prepared to battle for the common cause of reclaiming the American Dream.
Excerpted from Who Stole the American Dream? by Hedrick Smith Copyright © 2013 by Hedrick Smith. Excerpted by permission of Random House, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.