The rich or the poor: who should bear the costs of getting out of the crisis? This question may become the center of the presidential campaign. For the last six months, President Obama has been appealing for taxes on the richest to be raised. The Republicans consistently accuse him of inciting class warfare and dividing society. But the rising approval of the President shows that this scare tactic, though long effective, will not work this time. The majority likes the idea of making a hole in the pockets of millionaires — 57 percent of Americans believe that the richest do not pay enough taxes.
The financial differences in America are getting bigger: There is no need to induce any class antagonism as society is already divided like never before. Two thirds of Americans believe that there are serious conflicts between the rich and the poor in the US, and the number of those sharing this opinion increased by 10 percent during the last two years. Income inequality rose during the last three decades in all highly developed counties, but it is much greater in the US than anywhere else. Income inequality there is almost as bad as it is in the Third World. According to a recent Organization for Economic Co-operation and Development report, the ratio between the income of the richest and the poorest citizens in Germany, Denmark and Sweden is 6 to 1, and it is slightly greater in southern Europe, but is already 14 to 1 in the US.
Classes and Caste
Since 1989, the real wages of the heads of large corporations rose five to tenfold, and the incomes of the middle class and the poorest Americans did not change; some even dropped. But those are not the most important numbers. The cult of the dollar and success was always present here. Any suggestions to redistribute income and taking from the rich to give to the poor would always be met with the following response: You cannot punish success. Astronomical bonuses for bankers who drove the country into crisis outraged people, but it was not really the amount given, but the impunity of the beneficiaries that caused such feelings. According to a Gallup poll from last year, the majority of Americans, 54 percent, still think that the income gap is “an acceptable part of [the] economic system,” and 58 percent believe that those who want to be promoted can achieve it if they only work hard. The wave of prosperity will carry all boats, and America is the country giving opportunities to everyone. The problem is that the facts say otherwise.
The vertical mobility of society — from rags to riches — used to be America’s secret sauce, but it is much lower now than in many other highly developed countries. Promotion opportunities are better in Western Europe. As much as 42 percent of American men from the poorest families stay in this class for the rest of their lives. Only 8 percent of Americans coming from the lower class really change their position. “Upward mobility is too limited in the U.S. today, and it is lower than it is in other countries,” says Scott Winship, an analyst from the Washington-based Brookings Institution.
In America, which used to be a good example for Europe of a society giving the same start to everyone, there are stairs now. Francis Fukuyama, the author of “The End of History” who is far from being left-leaning, warned that America, and the entire Western World, is threatened by the gradual vanishing of the middle class. The political science specialist and the former Mexican minister of foreign affairs, Jorge G. Castaneda, asks if the United States really wants to look like Latin America used to look. In many Latin countries, we can observe a different process: The middle class is getting bigger. George Packer from The New Yorker views the increasing differences as an illness leading to the dusk of America.
The publicity of Charles Murray’s new book, “Coming Apart: The State of White America, 1960-2010,” is characteristic of these worries. The author is one of the leading ultraconservative social researchers; in the ’90s, he became popular for his work “The Bell Curve,” in which he tried to prove that African-Americans are poor because they are less intelligent. The right keeps parroting the idea of a classless society, while Murray in his newest book shows a vision of America divided not only by classes, but even into a sort of caste system.
On the one hand, he describes the closed elite community of wealthy people, which he calls Belmont, where wealth and position are more often than not inherited from generation to generation. On the other hand, there are the lowlands of the subclass, an imaginary Fishtown, the world of American white trash, with no education and no prospects for any promotion (to not get accused of racism, he excludes the African-Americans from the analysis). “Our country is coming apart at the seams — not ethnic seams, but the seams of class,” he says.
According to Murray, both mutually impenetrable groups are divided not only by the financial status gap, but by extremely different patterns of behavior: The citizens of Belmont take care to sustain the family; they have more children and go to church. The working classes, meanwhile, represent moral downfall. They get divorced more often, have children out of wedlock and are not religious at all. In his diagnosis, the author calls the research showing that the former “silent minority” got infected, albeit after a delay, with the fatal cultural revolution of the 1960s. And this is how he explains the solidifying of both classes into rigid castes: “Belmont has careers thanks to knowledge, with the most hard-working people with the highest IQs who graduate from the best universities, marry within their group and pass the best genes to their descendants. It is the complete opposite in Fishtown.”* The only reason there is a grudge against Belmont is that the people of Belmont live in a bubble and don’t want to provide a role model, which only makes the disastrous gap deeper.
Support from the Wallets
Murray’s book describing two Americas that are no longer integrated got an enthusiastic review from even the moderate conservative David Brooks, who is fascinated with Obama. As a former neoconservative and the co-author of the manifest on America’s supremacy in the 1990s, he is still an apologist for American exceptionalism, so it is easy to understand why it is so difficult for him to say goodbye to the myth of a classless American society and to traditional explanations of class division which blame the poor for their situation. Other researchers propose some more convincing explanations for weak social mobility.
Almost everyone agrees that what divides society most is access to education. Earlier, mostly the differences between the academic performance of white and black students were pointed out. But it was demonstrated lately that it is not about the color of skin, but parents’ financial situation. In the USA, rich parents have tremendous opportunities to support their children’s education, more than in other comparable countries, says professor Miles Corak from the University of Ottawa. It starts with local schools financed mostly by local real estate taxes. Given the low level of federal subsidies, this leads to underinvestment in schools in poor neighborhoods. More wealthy parents often send their kids to usually better private schools. Undereducated teens from extreme poverty and socially pathological ghettos have minimal chances for higher education at good universities, and those who manage to get there usually suffer because the tuition costs are much higher than in Europe and are still growing. This obstacle can be leveled only partially by scholarships and loans, as they are not easy to repay.
The inequalities are increased by the weaker social protection network compared to other European countries, reminds Scott Winship, which makes it difficult for the poor to get out of the vicious circle of poverty and social pathology, as well as by a commercialized healthcare system that favors wealthier citizens. There is a cultural aspect to this — the libertarian individualism of Americans tells them to count on themselves instead of the country. But this is not the whole explanation.
The entire system, the mechanisms of power (technological revolution, deregulation and small government ideology) , especially since the end of the 1970s, puts the rich in a favorable position and makes it easier for them to make even more money and pass their assets to their children. Large corporations, particularly those from the financial, military and energy sectors, powerful professional associations (lawyers and doctors) and other lobbies have immeasurably stronger influence on the government and Congress than “ordinary” citizens. Business got stronger at the expense of trade unions, which have been getting weaker for the last 40 years.
The rules of the game in the American casino are adjusted to suit the best clients’ needs. Many journalists have written on it, including New York Times investigative reporter David C. Johnston in his book “Free Lunch,” which shows how the rich manipulate politicians, buying their friendliness to get a higher return from this investment in the future. It was only strengthened two years ago by the Supreme Court decision lifting the limits for corporations sponsoring electoral campaigns. It is all confirmed by the fact that the greater the income inequality, the deeper the class divisions.
Taxes for Millionaires
At the center of the public debate in the U.S. now is the tax system, blamed by supporters of social justice for strengthening the divisions. Obama is not hiding that this focus is his goal when proposing the Buffett Rule to raise minimum taxes for people making more than a million dollars a year — people like Mitt Romney — to 30 percent. In Reagan’s times those taxes reached 28 percent, and the economy was at its best.
Conservatives object, however, claiming that the government’s revenue from such taxes fall as the rates rise (many stop investing in the U.S.) and keep recalling that rich capitalists are already under double taxation: Corporate tax rates of 25 percent do affect their personal income. They also keep raising the alarm that high taxes are slowing growth, but they never mention that they were actually much higher 50 to 60 years ago, when the economy was great.
The 35 percent tax rate in the USA, which theoretically has the highest corporate taxes in the entire industrial world except for Japan, is supposedly clipping the wings of business. But American companies do whatever they can to make them lower and, thanks to their lawyers, take advantage of any possible tax loopholes: discounts, reductions, deductions, refunds, etc.. In practice, they pay very little. The situation is considered unhealthy, but the U.S. doesn’t even carry the tax burden that Europe does, such as the gas tax that partially finances the welfare state. The holes in the budget have to be filled in a different way. Obama suggested some changes but it is difficult to change anything in the situation of political deadlock in Washington. At any rate, it shows that taxes are a limited remedy for the grossly uneven division of wealth.
Obama said in December that income inequality is not just another political issue, but a serious problem of our time. This change in the course of the president, who stopped making deals with the Republicans last fall, coincided with the birth of the Occupy Wall Street movement. Although the movement’s camps were removed from the squares in the cities, it keeps on protesting during the Republican primaries. Jeffrey D. Sachs, the economist who converted from the neoliberal faith, sees the vanguard of a new age in American politics and a continuation of Roosevelt’s New Deal in the movement.
But Occupy Wall Street, though Democrats’ natural ally in their confrontation with the Republicans, behaves entirely differently from the tea party. It has not promoted any clear programs, does not support any Democratic candidate and keeps distancing itself from the White House while both parties benefit from lobbyists and candidates with large, well-funded lobbies. Obama does not disclaim support for the super PACs, committees consisting of the most generous donors. The protesters call for the elimination of private money from the election campaigns, but this idea remains utopian. If the protest movement is to turn into a real political power and start “to occupy the majority”— as the left-wing columnist E.J. Dionne from The Washington Post said — it will not happen any time soon.
*Editor’s note: While accurately translated, this quote could not be verified in English.
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