As I talked with people during my campaign for the State Senate, one of the themes that I heard was a concern over all those people too lazy to work and living off social welfare programs. Now I am not going to argue that there are no freeloaders who are surviving on government support, but from my investigations freeloaders make up a minority of those receiving government support. Actually, many of those receiving assistance are working poor who hold multiple jobs. I know there are a range of views on the number scamming the system from the 47% who pay no federal income tax to no freeloaders, but the truth I am sure lies somewhere in between.
So what do we do about the freeloaders, and those who are in true need of help? Earlier this year my wife and I went to see the musical Oliver. You may wonder what this has to do with the social welfare, but it is a great example of how social welfare was handled in Great Britain in the mid 19th century. “In early Victorian times, poverty was seen as a dishonourable state caused by a lack of the moral virtue of industriousness.” The American view of poverty was probably similar. In that time frame both in the U.S. and Great Britain, workhouses and poor farms were also implemented to deal with poverty. The poor were housed in austere conditions and forced to work to earn their keep.
I would not be surprised if some today would not propose going back to that strategy for dealing with the poor. Unfortunately it did not correct the problem of poverty, although it certainly promoted crime and made the lives of the poor miserable. Over the years society in general has changed its view of poverty, and society also assigned some of the blame. The War on Poverty started during the Johnson presidency was an example of attacking the societal causes and providing assistance or welfare for survival. The War on Poverty helped reduce black poverty from 40% to about 31% from 1966 to 1969 and to about 23% during George W Bush’s presidency. Poverty among non-Hispanic whites dropped from 14.7% to 6.1% by 2006 (From the Land of Promise by Michael Lind). Certainly this strategy for fighting poverty has worked better than the previous ones of the 19th and the early 20th century, but obviously we have not found an ultimate answer to the problem, and to be honest we probably never will.
Another question is why should we worry about poverty and the poor. One reason is obviously a social conscience, but I believe poverty is also a drain on our economy and our country. We lose the talents and abilities of those who are stuck in poverty and do not get a decent education. Poverty breeds crime, consumes resources, and robs us of potential talent. Our country and economy will be stronger if we can eliminate or further reduce poverty.
Let me close with some final comments. Eliminating poverty is good for the poor and it is good for our country. Will we be providing assistance to the freeloaders, yes, but these are a minority and we likely cannot eliminate all cheating either among the poor or on Wall Street. It is something our society will have to live with. Finally our priority should be to assure that the children of the poor receive the education and skills to assure they are given the opportunity to get out of poverty.
Recently a big stir was caused by a surreptitious recording of Mitt Romney speaking to group of his donors, and he referred to the 47% of the US population who pay no income tax. Romney seemed to imply that this 47% were living off of government assistance, feeling sorry for themselves, and were never going to support Romney. I certainly hope he is right about the latter, but he showed a lack of understanding of this group especially implying that they are all living on government assistance. If we look at the facts we will find that most of the 47% are either low income working families or low-income elderly families. Lets look at this 47% and see if we can get a better idea of who they are, and why they pay no income taxes.
From Figure 1 we can see that 23% of the population falls below the minimum income to pay income tax. I think we all realize that our income tax system is progressive meaning that the more you earn the more you pay. In 1953 the top marginal tax rate was 92% of the wealthiest earners, by 1980 that had decreased to 70% and today it is 35%. Over that period not only the rich got tax breaks, but the lowest earners were also helped so that today if a family of four makes less than $26,400 they do not have to pay income tax. This does not mean that they do not pay tax. In fact 28.3% pay no federal income tax, but still pay payroll tax such as social security and Medicare tax. So more than half of those who pay not income tax still pay payroll tax. In addition most of us pay sales tax, fuel taxes, and property taxes. Yes, even if you rent your rent will be paying a portion of the landlord’s property tax. Now Romney implied that this portion of the population was non-contributing because they pay no income tax. I think the problem is that many Republicans measure a person’s value by their net worth not by other contributions to our society. These people do contribute to the nation’s economy through the their work and their spending. The truth is that the poor put a much higher percentage of their income back into the economy through spending than the rich.
Another segment of the 47% is about 7% of the population that because of benefits for the working poor with children, do not have to pay income taxes. For this group a family of four (two adults with two minor children) earning less than $45,775 does not have to pay income taxes. Like the first group these people are contributing to our society and economy just not paying income tax. What is unfortunate that like the first group, they are unable to earn a living wage. We also have to keep in mind that these children are the future, and will be contributors to the economy of the future and also to our social security. It will benefit us all if they can be raised in loving families, receive a good education, and are kept healthy so anything we can do to lift them out of poverty is a good thing. For most of us these kids will be paying our social security and Medicare in the future so we want them raised well.
Then we have the elderly who because of an additional standard tax deduction and exemptions on a portion of social security income do not make enough to pay income tax. This group makes up about 10% of the population. Now Romney and his cronies may consider this group as non-contributing, but I think most of us would consider the elderly as a group that have contributed in the past, and now have earned the opportunity to take a break. You know this group is recycling their income back into the economy.
The last group making up about 6% population that because of itemized deductions, tax credits for education, and income tax exemptions for everything from disability payments to interest on municipal bonds do not have to pay any income tax. In fact a little over 5% of the population make over $50,000 income and do not have to pay any income tax.
Romney is right that 47% population do not pay federal income tax, but he is wrong when assumes that they do not contribute to our nation’s economy. These people are important to society, and we would miss them if they were not there. It is unfortunate that Romney judge’s people’s contribution by how much income tax they pay. How should we judge the contribution of Romney who made $20 million and only paid 13% income tax? How should we judge the contribution of those on Wall Street who paid vast amounts of income tax on the fortunes they made while driving our economy into the crapper?
Figure 1
During this campaign season we hear much about class warfare, support of the middle class, punishing the successful, wealth redistribution, and taxing the rich. Do you wonder what this all means? The main issue is taxes and particularly whether we should increase the tax rates for high-income families. Certainly if you are middle class or poor, you would rather see the rich pay higher taxes than you. If you are rich, you probably do not want to see your taxes increase. So how do we sift through all these claims, and decide on what is the best solution.
Almost every country today has progressive income taxes, or tax rates that are higher for higher incomes. There are many reasons for progressive taxes, but one simple one is that the wealthy have more surplus income after taking care of basic needs. So the rich can afford to pay more taxes. I think this makes sense for most of us, but it still leaves the question of how much more the rich should pay. One concern that has been expressed that if their taxes are too high the rich will have no interest in trying to earn more. Having said that the top federal tax rate in 1952 was 92% while today it is 35%, and the economy was much more robust in the 50’s than it is today so the evidence does not necessarily support that top tax rates will damage the economy
Another reason that the top marginal tax rate is getting a lot attention in recently is the impact on the middle class. Those who know much more about the economy than most of us, are concerned that the reduced tax rates for the wealthy are resulting in an increase in their overall wealth. This gain in wealth for richest is at the expense of the poor and the middle class, or the rich are getting richer at the expense of the rest of us. Some would say that it is only fair that the successful should be rewarded for their success. Unfortunately economists will tell you it is the poor and middle class that are better at recycling their income back into the economy while the rich tend to save more of it especially in offshore accounts.
Below is a table that shows distribution of net wealth for different portions of the population between 1989 and 2010.
I realize this table contains a lot of numbers, and it may be difficult to comprehend what is happening. If we look at the two bottom groups 0-50% and 50-90%(or the bottom 90% of the population), in 1989 the bottom 90% held 32.9% of the nation’s wealth in 2007 (just prior to the economic crash) their share had dropped to 28.5% a reduction of just over 13%. In three next three years they lose almost another 11%, or in 21 years the bottom 90% of the population lost almost a quarter of their wealth share. The result is a severe blow to the poor and middle class the spending engine of our economy. Unfortunately the bottom 90% includes more than the poor and middle class, but at least you get an idea of the issue.
There are many reasons for the drop in wealth of the lower 80 or 90% of the population, but two of them are the decreasing tax rate of the rich and another is the growing income inequality. Today I want to just discuss the tax rate of the wealthy. Below is a table of the Top Marginal Tax Rate from 1980 to 2010. The Top Marginal Tax Rate is the tax rate the highest earners pay on the next dollar they earn. In 2010 a family with a taxable income over $373,000 (after exemptions and deductions) would pay this rate on earnings over $373,000.
It appears that there is a correlation between the decreasing wealth of the bottom 90% and the decreasing top marginal tax rate. In addition to Top Marginal Tax Rate, we also need to look at the Long Term Capital Gains Rate since the super rich get most of their income through long term capital gains. Keep in mind that Mitt Romney has been paying only about 13-14% income tax. We see the capital gains rate is also falling as the rich gain a greater share of the nation’s wealth.
Of course many will say why should we take from the rich and give to the poor. There are reasons to justify the rich paying higher taxes some related to social justice some economic. I believe one reason is that it is necessary to strengthen the poor and middle class. It is the spending of these groups that helps drive our nation’s economic engine. You may think I am crazy, but I will give you the views of two of very different individuals Henry Ford and Paul Wellstone. Ford was credited with "Fordism: mass production of inexpensive goods coupled with high wages for workers.” (Wikipedia). Ford believed he needed to pay his employees enough so they could afford the cars they were building. Wellstone expressed a similar view when he said “We all do better when we all do better”. These diametrically opposite individuals believed that a strong economy depended heavily on the lower and middle classes as well as the rich.
We should implement higher tax rates for the wealthiest Americans not to penalize the rich, but to strengthen the poor and middle class that make up a majority of the population. This will strengthen our economy and create jobs, and we will all benefit.
Both major parties have had their national conventions, and we are headed into the last into the last eight weeks of the campaign. It was interesting if you paid attention to the conventions some of the differences between them. I do not mean just one supporting Romney and the other Obama, but differences on what was on the agenda or not on the agenda.
One big difference was that the last Democratic President, Bill Clinton, played a prominent role at the Democratic convention including a nominating speech for Obama. At the other convention the last Republican President George W. Bush was not only not there, received very little attention if he was mentioned at all. Now there could be many reasons for keeping Bush out of the limelight. I believe one reason is the Republicans do not want to remind the electorate that it was Bush and his policies that brought our economy to the brink of depression. They also they do want the voters to notice the Romney’s cures for the economy are the same ones that Bush advocated in his run in 2000. Romney and the Republicans are hoping you will not remember that their fiscal policy failed before, and they did not want to take a chance and remind you.
Another interesting difference between the two conventions is the discussion of the previous records of the two candidates. The Democrats did spend a lot of time on Obama’s record as President highlighting the positives and excusing the negatives. The Republicans highlighted Romney’s time at Bain and as the leader of the Salt Lake City Winter Olympic Games. Because these records were less public than Obama’s Presidential Record, they just avoided the negatives. What is interesting, however is they seemed to ignore his time as Governor of Massachusetts. Why would they try to ignore this important Romney experience certainly the most comparable to being President. First his record was lackluster, and most importantly he implemented a healthcare plan very close to the Affordable Care Act or what is know as Obamacare.
The job of campaigns is to make their candidates look good, and the opponent look bad. If we want to be good voters and citizens, our responsibility is too look at all the facts, and what is said and what is not said. To me what the Republicans did not say or talk about at their convention is more important than what they did say.
I saw an ad from the Romney Campaign talking about Ross Murty. Mr. Murty is the co-owner of the Village Corner Deli in Davenport Iowa. Mr. Murty was concerned that President Obama had implied that government was responsible for his successful businesses. His view was that he and his partners had built their business with no help from government.
I would have to agree that their hard work was a key to their success, but what about some other factors that led to their success. Lets start with education. Do you think these partners would have been able to develop a successful business if they were uneducated? Could they have read or signed contracts if they were illiterate. Could they have done their books without math they learned in school? Education is one of those services that are provided by government in this country. They established their business in Davenport the third largest city in Iowa with about 100,000 people. I am sure the their success is also a function of Davenport’s success as well as the other nearby population centers. Davenport is the largest of the Quad Cities that have grown on both banks of the Mississippi River. Highways and bridges, highways and bridges that were built by government connect these cities. What about the government built Lock and Dam system along the Mississippi adding to the Davenport’s transportation options and success?
I can go on and on about government provided services such as fire, police, public utilities etc. Government support does not diminish Mr. Murty’s success. We have come to expect in this country that government provides an environment where hard working entrepreneurs can succeed. Part of our problem is that we have often taken it for granted forgetting the role that government plays. Maybe we should visit less developed countries, and we will be more aware of the role played by our local, and national governments.
I recently watched a movie that we recorded. The movie Mississippi Burning had been made in 1988, but was a fictionalized account of the investigation of the murders of three civil rights workers in Mississippi in 1964. I remember the original story because it was in the news for weeks as the search for the bodies of the young men went on. It also hit home with me because I was 18 at the time just a few years younger than the missing young men.
So why am I bothering to tell you this story because the three young men were killed because they were working to register black voters in Mississippi. This movie struck home with me because earlier in the day I had seen billboards along I 94 promoting the Photo ID Voter amendment. As we watched the movie I wondered what these young men would think about these efforts to throw barriers in the path of seniors, the disabled, the poor and anyone with transportation limitations. It is sad that we are returning to a past era where it is okay to try and block someone from voting to gain political power.
I have seen the ads that tell us about the levels of voter fraud, but by now most of realize that lying in political ads is acceptable. We are all aware of the recent US Senate election in Minnesota when only about 300 votes separated the leading candidates. This shows the importance of a fair and honest election, but we should also realize that election officials, members of both major parties, news reporters, and neutral observers, reviewed the returns yet no one could find any evidence of voter fraud that would affect the results. The biggest problem was felons who had voted, but had not regained their right to vote. Certainly a problem, but not one that would not be helped by photo ID.
Supporters of the photo ID amendment talk about the integrity of the election process, they are only worried about someone voting who should not be. I feel it is voter fraud when we place barriers in the path of those who have the right to vote. This is what they did in many southern states 50 years ago. Now we are trying to do it around the country with the phony excuse of protecting us from non-existent voter fraud. Watch Mississippi Burning and decide which side you want to be on.
I will be voting NO on the Voter ID amendment. If you believe in protecting the right to vote is important, as those three young men who died 48 years ago in Mississippi did, then you will join me in voting NO.
I recently spent five days at the Carver County Fair, and had a chance to meet and talk with many people. One of the issues of concern with several was government assistance to people unwilling to work. I do not want to get into a debate over the percentage receiving government assistance that are trying to get a free ride. I would concede that some people are trying to get by without working, but personally I believe that is a small minority. I also believe that we should be careful not punish those who need and will benefit from assistance because of those looking to cheat.
This year we had the opportunity to attend a performance of Oliver by the Chaska Valley Family Theatre. You may wonder why I am changing the subject, but actually I am not. In mid 19th century England this musical represents how the poor were dealt with. I know many of us are unhappy with government assistance today, but I do not think that we should go back to an era when being poor was considered a crime. It was horrible treatment for people, and it also hurt the society as a whole by promoting crime and disease. In addition the nation lost the potential contributions of those whose only crime was being poor. In Britain in that era it was felt only those of the upper class added value to the society, but in the US we have always believed that all have potential.
I wish I had a miracle cure for poverty, and a way to rid us of the need for government assistance. I do believe it is critical to support families with children, and break the chains of Generational Poverty. The best way to do that is training and education, not only for the children but for the parents as well. Yes, we also have to create a tradition of work with the result of a better life ahead. At the same time we need to be careful and gradually reduce aid with higher earnings so that we do not create disincentives for better jobs. One of the goals of this assistance is to eliminate the need for assistance in the future.
Although, I feel our priority should be families, and a goal to wean most from assistance, there is a segment of the population that will always be dependent on government assistance either because of illness, disabilities, or chemical dependency. I believe that we need to develop a plan to help these groups as well especially those that might be veterans. For some it may be just to provide a secure stable environment while for others it may be providing an environment that will lead to fully utilizing their abilities.
I know many people believe that government assistance for the poor is just a bottomless pit that holds people and families forever. The reality is a little different. The War on Poverty dating back to the Johnson presidency helped reduce black poverty from 40% to about 31% from 1966 to 1969 and to about 23% into the term of George W Bush. Poverty among non-Hispanic whites dropped from 14.7% to 6.1% by 2006. The economist Martin Anderson who became a leading adviser for the Reagan Administration said in 1978 “The dismal failure’ of welfare is a myth” (From the Land of Promise by Michael Lind).
We are making progress in the war against poverty, but we may never wipe it out completely. It is important to understand that poverty is not only a burden on those caught in its grips, but it also affects us all. How many poor kids with talents that our country needs are lost because of the chains of poverty. Are we losing the next Teddy Roosevelt, Steve Jobs, Bill Gates, or Jonas Salk because they are growing up in poverty, and receiving an inadequate education and poor medical care.
We just marked the fifth anniversary of the collapse of the 35W bridge over the Mississippi River. This disaster resulted in 13 deaths and 145 injured. Along with the human tragedy there was also economic damage. Those that normally traveled this bridge now had to find new routes. Commute times increased, trucking costs increased, and MNDOT and the metro area governments all had additional costs. Think of a business that was considering Minnesota as a future site. How many decided not to locate in Minnesota because of this disaster?
I called this a disaster, but it is also a failure of government to do its job. Our expectations in this country are that we can depend on our infrastructure. We realize that in the many parts of the world that is not true, but in America and Minnesota we have higher expectations. I know blame for this bridge failure has been put on under-sized gusset plates, but most of us with engineering experience know that a failure like this has more than one cause. I think most of us would rather believe as we cross a bridge that our lives depend on more than how well the gusset plates were designed. Remember that this bridge had been built and designed by the lowest bidder. Did we get what we paid for?
Besides the gusset plates this bridge was reaching the end of its life, but it was felt that we could get a few more years out of it and not have to raise “taxes.” We hired a firm to study the bridge, and they recommended two plans to ensure continued safe use. One plan would cost several hundred thousand, and one that would cost about 2 million. MNDOT decided on the lower cost plan for budgetary reasons. Our Lieutenant Governor was appointed to head MNDOT to save a salary, but she had no engineering training or experience. Her experience was in keeping transportation spending down as a member of the legislature. Finally a contractor doing road surfacing on the bridge was allowed to overload the bridge with equipment and supplies. I suppose no one checked if the loading would impact bridge integrity because of cost. This was a failure not of one piece, one person, one party, or one governor. This was a failure of our government and us to make sure this bridge and our infrastructure is capable of doing its job.
For years prior to the 35w failure I was aware of numerous news reports on the poor state of our bridges in Minnesota, and the country. I am sure many of you remember the same reports, and we did not do anything about it we left it to our legislators and governors take care of it. Unfortunately they were more worried about “taxes” than our “safety.” After the collapse there was a flurry of activity to repair our bridges, but now five years later the Star Tribune reported there are still 1100 bridges in Minnesota and almost 70,000 nationwide that are “structurally deficient.” Minnesota actually has done better than most states because we increased our gas tax; however our current state senator voted against both the tax increase and the veto override. I am sure she, as a party leader, also helped drive those Republican legislators who voted for the veto override out of the party.
It is up to us if we want infrastructure that we can depend on. It is popular today to attack government as the problem, but read the Preamble to the US Constitution it starts with “We the People” not the government. The power of the United States is that “We the People” are the government, but that means “we” are also responsible when government fails to do its job.
Our current State Senator says in her campaign literature “We prioritized funding for education allowing for more opportunities for successful students.” Sounds great but the truth is that per student funding, if adjusted for inflation, has decreased by almost $1300 during her tenure. In addition the State has borrowed from the schools to fund the continued tax breaks for the rich. This puts additional strain on K-12 since the districts have to borrow and pay interest on the money they should have received from the state. This does not sound like giving priority to education to me.
It is not only K-12 that has seen cuts. The University of Minnesota and the MNSCU system have also had funding reduced. Tuitions are up and students are leaving school with record debt. The reduced education funding not only affects our young people, but it impacts all of us. One of the reasons for Minnesota’ s past economic success is a well-educated work force.
The results of the funding cuts are a slow decline in Minnesota education, which will make us less competitive. In 2006 a State comparison of K-12 Schools by the American Legislative Exchange Council (ALEC) ranked Minnesota 2nd just behind Massachusetts. In 2011 the ALEC ranked Minnesota 18th while Massachusetts still ranked #1. ALEC for those who believe I am using biased data according to Wikipedia is a 501(c)(3) organization “composed of conservative legislators, businesses and foundations.” We are headed to a future where Minnesota will not be able to compete based on a quality workforce and will have to depend on low wages. Is this the future you want to see for our state and for our children?
As we slowly move to the election we continue to hear from the Republicans about the evils of the Affordable Care Act (ACA) or Obamacare. Yet we never hear their plan. America’s healthcare ranks 32nd overall in the world, 50th in Life expectancy, 49th in infant mortality, and is only number 1 in cost. Certainly there is plenty of room for improvement, but all I hear is criticism of the ACA not what they would do different. They say they do not want European Socialized Healthcare despite the fact that most European countries with socialized medicine get better results, and have significantly lower costs. It is easy to criticize it is more difficult to provide a better solution.
I also hear attacks on Obama’s handling of the economy, but what is the other side going to do to make it better. I have heard they will cut taxes and cut regulation. This is the same plan we got from George W. Bush, and we all know how well that worked. We cannot sit back and listen to these lies, we need to get the truth out. Unemployment peaked within months of Obama’s inauguration and was a result of the Bush policies. Since then it has decreased, but more slowly than any of us would like.
Why has the economy been so slow to come back? First the Republicans have done everything they can in Congress and State government to slow recovery so they can win the upcoming elections. Remember The Republican Leader of the Senate Mitch McConnell said “Our top political priority is make Obama a one term President”. Their top priority was not creating jobs; it was keeping government from working, and making the President look bad. As a result this Congress has been one of the least effective in history. In addition to the Republican political blockade, we are faced with the economic problems in Europe. We cannot expect our economy to boom if Europe is in recession. The fact that our economy is improving at all is a great sign. Unfortunately we have a Republican Party that has no plan for the future. Their strategy for the election at all levels is attack anything Democrats or the President do or propose.
The time has come when criticism is not enough. Do not accept these attacks ask for their plan, and it better be more than cutting taxes and deregulation because that is how we got so deep in the hole in the first place.
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