In February, lawmakers, unions, and community groups from New Jersey, New York, Connecticut, Pennsylvania, Rhode Island, and Massachusetts convened for a “legislative teach-in” to strategize on how to wage the most successful campaigns. More recently, dozens of legislators from those states signed on to a letter calling to end tax breaks for the wealthy and push more progressive state tax systems.
IN THE WEALTHIEST state in the country, a legislative fight is brewing over whether to tax the elite residents who bring the state its superlative. Connecticut boasts the third-largest center for hedge funds in the world, 14 resident billionaires, and trifecta control for the Democratic Party, including a supermajority in the state Senate and a near supermajority in the House. In April, the state’s Finance and Revenue Committee approved a package with tax cuts for poor and middle-class residents, financed largely with new taxes on households earning more than $500,000 per year. But the General Assembly ends June 9, and Connecticut’s Democratic Gov. Ned Lamont has declared that he will veto any such move.
“Governor Lamont has been clear for months: Connecticut doesn’t need more taxes, we need more taxpayers,” said spokesperson Max Reiss in a statement to The Intercept.
Connecticut isn’t just the nation’s wealthiest state — it’s also among the most unequal ones, with the top 1 percent out-earning the rest by more than 42 to 1. Affluent towns like Darien and Greenwich stand in stark contrast to the realities of deeply poor cities like Hartford and Bridgeport. (Lamont, a multimillionaire who grew his personal fortune through the telecommunications industry, lives in Greenwich.)
“I think sometimes people think they know more than they know,” said Rodney Wade, a pastor from Waterbury, Connecticut, who has been advocating for the tax increases through a labor, faith, and grassroots coalition known as Recovery for All. “And when you don’t understand the language and the issues, then you believe that you have the answers. At the end of the day it boils down to who has your ear, and what we’ve learned is it’s been hard to get the governor’s ear, compared to his buddies.”
Connecticut’s state legislature isn’t the only one in the Northeast to recently lean into a progressive revenue campaign, and advocates are hoping that their neighbors’ wins will help them with leverage. Last year, New Jersey became one of the first states to pass a millionaires’ tax, increasing state income taxes on millionaires by nearly 2 percentage points while also creating a new annual rebate for families earning less than $150,000.
This past spring, New York lawmakers also succeeded in passing new legislation to tax the state’s highest earners and corporations, something New York Democratic Gov. Andrew Cuomo had long resisted. All told, the legislation will raise $4.5 billion in new revenue, in part by increasing the personal income tax rate on individuals making over $1 million.
“Every time a state rejects the notion of austerity and leans into raising revenue, it’s more wind in our sails,” said Charles Khan, the organizing director at Strong Economy for All, a labor and community coalition in New York. “So seeing New Jersey do that last year, and seeing [Gov. Phil Murphy], a former Goldman Sachs exec sign it — that really helped.”
Activists and lawmakers in Connecticut are pushing increases on the wealthiest households that would generate about $760 million annually, plus a tax on digital ads that could generate an additional $162 million per year.
Carol Platt Liebau, president of the Connecticut-based conservative think tank Yankee Institute for Public Policy, told The Intercept that the proposed tax increases would “make the state more dependent than ever on volatile investment income” and argued that in the past, when such revenues haven’t materialized, the state turned to less-targeted tax hikes that hit the poor harder. According to Liebau, the newly proposed tax increases “target people who are extremely mobile and often have the option to move their residence to a lower-tax state.” She pointed to an analysis from her think tank showing that Connecticut still hasn’t recovered the number of high-earning households it had before the Great Recession. It “barely” remains the wealthiest state, the think tank warns.
For decades, efforts to raise revenue by taxing a state’s wealthiest residents have been met with arguments similar to Liebau’s. Resistant lawmakers and local business groups warn that taxing the rich too much would drive the wealthy to move away altogether, leaving the state with even less revenue than they started with. The other common refrain is that higher taxation is an issue for the federal government to address, not something that can be tackled on a state-by-state basis.
Both arguments sound true at first blush: Adjusting federal tax policy would be a major game-changer, while at the same time, the wealthy already avoid the full cost of their tax bills. Earlier this year, a team of researchers from the London School of Economics; the University of California, Berkeley; Carnegie Mellon University; and the IRS put out a new analysis, estimating that the richest 5 percent of Americans hide more than 20 percent of their earnings each year from the federal government.
But in recent years, a growing number of advocates and researchers have begun to push back on these talking points, homing in especially on the fear that state tax policy significantly drives residential migration patterns. (Climate preference appears to be a much greater factor.) One Cornell University sociologist analyzed tax return data and found that the rich rarely change the state where they live. Just 2.4 percent of millionaires move across state lines each year, and of those, only 1 in 8 were chasing lower taxes — or 0.3 percent of millionaires overall. “So tax flight is not a figment of our imagination, but it is greatly exaggerated,” wrote the researcher, Cristobol Young. “This fraction of moves is too small to matter, especially as New York continues to grow new millionaires faster than any leave.”“Tax flight is not a figment of our imagination, but it is greatly exaggerated.”
Khan, of Strong Economy for All, said his group’s work in New York has also revealed how state-based reforms can impact federal conversations. “When we can pass model-type legislation in blue states, it further moves the constituencies of those House and Senate members to be in favor of taxes,” he said. “So we’ve seen it does help us on the national level.”
Zohran Kwame Mamdani, a New York state assembly member who supported raising taxes, said his legislative colleagues often argued that taxation was a national responsibility and not their fight. His colleague Yuh-Line Niou, who also pushed for tax increases, added, “We heard that since there’s going to be dollars coming from the federal government, we don’t have to raise this money. But what we’ve said over and over is, well, that’s going to be a one-time infusion, and we need funding in perpetuity.”
In February, lawmakers, unions, and community groups from New Jersey, New York, Connecticut, Pennsylvania, Rhode Island, and Massachusetts convened for a “legislative teach-in” to strategize on how to wage the most successful campaigns. More recently, dozens of legislators from those states signed on to a letter calling to end tax breaks for the wealthy and push more progressive state tax systems.
Connecticut advocates with Recovery for All say the proposed tax increases could go a long way toward funding housing, social services, and health care. “The funds could help finance more school counselors, support for paraprofessionals, food availability because some students need meals also at night and on the weekends,” said Jeff Leake, president of the Connecticut Education Association. Callie Heilmann, co-director of the grassroots group Bridgeport Generation Now!, added that the wealth tax could help support an alternative to policing. “We want to fully fund our mobile crisis teams so they can operate 24/7,” she said. Northeast Legislatures Tax Letter3 pages
THE TAX INCREASES on the table in Connecticut are more modest than advocates sought even a few months ago. In early 2021, progressive lawmakers introduced legislation in both chambers to generate $4 billion-plus from the state’s wealthiest residents and corporations. Hundreds turned out in March to testify in support.
Sen. John Fonfara, a Democrat from Hartford — the poorest city in Connecticut — and one of the finance committee’s co-chairs, had originally aimed to raise taxes on households earning more than $140,000 annually, but he told The Intercept he couldn’t garner enough support from his colleagues for that. Still, the legislature has “never pushed anything of this magnitude before,” and he credits the Recovery for All coalition for pushing him to think more seriously about progressive taxation.
“I candidly admit I had not spent anywhere near enough time with the 2014 Department of Revenue Services incidence report,” he said, referring to an analysis that revealed the state’s regressive tax structure. “I now consider that my bible in many respects.”
Martin Looney, president pro tempore of the Connecticut Senate, acknowledged that changes to the tax code have thus far been modest and incremental. “I certainly believe we should take every opportunity to keep advocating for making our tax code more progressive, including having a separate capital gains tax,” he told The Intercept. “We’re going to continue to advocate for them in our negotiations with the governor.”
Business groups, Republicans, and Lamont have continued to stick to their arguments that taxing the wealthy more would be detrimental for the nation’s wealthiest state. Lamont has pointed to the billions of dollars in relief funding for the coronavirus pandemic coming into Connecticut from the federal government as reason to avoid imposing new taxes. “The administration wants us to believe our economic problems just started with Covid,” said Fonfara.
“The discussion is predicated on the belief that Connecticut state government isn’t spending enough money,” said Liebau, of the Yankee Institute for Public Policy. “Our elected officials should be finding better ways to give people their money’s worth, not conjuring up new ways to take more of it.”
Lamont’s opposition strikes some Democrats as particularly out of step, since he was one of the earliest endorsers of President Joe Biden, and Biden, along with Democrats in Congress — who have a much slimmer majority — have made a point of public support for taxing the rich. Lamont’s adamant centrism also stands in strong contrast to the progressive mantle he claimed when he ran for U.S. Senate in 2006, campaigning on ending the Iraq War and investing in public education. He moved rightward just four years later, when he positioned himself as a pragmatic businessperson in his gubernatorial bid.
“The ideal approach would be a nationwide approach, but in the meantime there’s a lot we can do. This is not a zero-sum game.”
Advocates in the Recovery for All coalition are still determining how they’ll ramp up pressure over the next two weeks, but they stress that their work will continue beyond the 2021 budget cycle. “There’s never been this type of coalition that has worked together before,” said Joelyn Leon, political director of the Connecticut Employees Union Independent, SEIU Local 511. Last week, the coalition held a mass rally at the state Capitol in support of the proposed tax increases, and earlier this month, they stormed the governor’s residence in Hartford to stage a “die-in” in support of a more equitable budget. They’re also running a series of digital ads to pressure the governor.
“What New Jersey’s done does help us from a lobbying perspective,” said Jennifer Berigan, the legislative and political director at Connecticut AFL-CIO. “What New York and New Jersey in particular [have] done demonstrates what’s possible.”
“Yes, the ideal approach would be a nationwide approach, but in the meantime there’s a lot we can do,” said Mamdani of New York. “This is not a zero-sum game.”
Frank Fish, Greed and plutocracy are destroying America, Salt Lake Tribune. A retired corporate VP explains why the rest of the world sees the United States as a corrupt falling star. May 26, 2021
I consider myself a good American with lots of international experience, seven years consulting in Italy, France and the UK; 15 years as vice president of product design and sales for a major software company involving set up and supervision of offices in more than 40 foreign countries. Those are my international bona fides. I will now attempt to describe why the rest of the world sees the U.S. as a corrupt falling star.
The U.S. became world leader after much of European and Japanese infrastructure and youth were destroyed in World War II. No European I have met recently thinks that ranking is still justified. We no longer have the biggest economy. Based on purchasing power parity, China has surpassed us. We have the biggest external debt and the biggest current negative trade balance in the world. If the U.S. were an individual, we would be in debtor’s prison.
We should be No. 1. We have the most usable agricultural land in the world. We led the world’s industry for 75 years after World War II. We don’t have the largest population, but plenty of well-educated residents and lots of well-educated would-be immigrants. So, where do many Americans think we are No. 1 but the world thinks otherwise?
Democracy. In the Economist’s annual rating for 2020 we were the 25th most democratic country.
High school education. This is the foundation of our future, but we rank only 12th in reading, 20th in science and 28th in math.
Health care. As measured by The World Health Organization (and taking into account cost) we are 37th.
Why aren’t we #1? Three reasons: egotism, politics and corruption.
Egotism. We think we are No. 1 and can rest on our laurels. We don’t bother learning about other countries, though many of their newspapers are available online. Other nations move forward. They no longer want our polluting, gas guzzling cars; we are now only the eighth biggest producer in the world. Ditto personal computers, where we produce less than 10% by value.
Politics. A democracy? Ninety percent of our Senate seats and 80% of our House seats went to the biggest spender in 2020. That’s plutocracy.
Corruption. Spending to win a Senate seat averaged $300 million, $25 million for a House seat. Politicians in Congress are officially paid about $144,000. Can’t you smell the corruption? Many politicians take their orders from their big business donors rather than their constituents and make fortunes in the stock market.
Payback example 1. Republicans are fighting against replacing some taxes on the rich when we just ended a year with the biggest negative balance of trade in peace time!
Example 2. Paying double what other countries pay for prescription drugs — the industry with the most lobbyists in Washington.
Example 3. Whether they believe them or not, lawyers are highly trained in presenting “facts” favoring their clients — innocent or guilty. In Congress, 166 representatives and 57 senators have law degrees.
I don’t like plutocracy because the rich are paid too much and many have mastered tax evasion — e.g. Jeff Bezos, Elon Musk, Tim Cook and Mark Zuckerberg — all worth billions, but their companies pay peanuts in taxes.
Historically, corrupted democracies have all failed. Do you want the U.S. to be next?
Frank Fish, Taylorsville, UT studied mathematics in college, was a Fulbright scholar and worked as an information systems consultant in the U.S., U.K., Italy and France before retiring.
The United States is 37 out of 41 on UNICEF’s 2020 report card that measures the progress of wealthy countries in meeting child-related sustainable development goals, such as clean water and sanitation and freedom from poverty and hunger. Why the U.S. ranks so poorly can, in part, be attributed to the fact that children’s issues are not often connected to larger policy agendas.
Funded by the Robert Wood Johnson Foundation and the Children’s Hospital Association and in partnership with Leading for Kids, a national organization committed to building a culture that prioritizes kids, the FrameWorks Institute is excited to release Why aren’t kids a policy priority? The cultural mindsets and attitudes that keep kids off the public agenda. This work is the first in a series of reports that will help change the way we talk about kids and the policies needed to ensure children’s rights and wellbeing.
This report identified two fundamental obstacles in public thinking about children’s issues and public policy:
- Obstacle #1: People assume that children largely exist in spaces where they receive care provided by an adult, such as school and family. This mindset leads people to focus exclusively on family and education policies when thinking about children’s needs and wellbeing.
Right now, advocates should highlight and explain how social policies across a number of domains affect children and make these connections clear for their audiences. To more fully address this obstacle, the next phase of the project will offer tested recommendations for helping move past this understanding.
- Obstacle #2: People increasingly understand what children need, yet they don’t see why systemic changes are necessary to meet those needs. Individualism runs deep in American culture, and people struggle to see how systems and environments shape social outcomes, which narrows thinking about the role of policy in children’s lives.
To begin to shift thinking, foreground and explain how kids’ lives, like all of ours, are shaped by society and the environments in which we live. Connect the dots between social systems and specific outcomes to reinforce and deepen systemic thinking.
Steve Wamhoff, How Biden’s Plan Would Crack Down on Wealthy Tax Evaders, Institute on Taxation and Economic Policy. His administration’s plan increases the IRS budget, expands income reporting by financial institutions, and regulates tax preparers.
Excerpt from Theodore Schleifer, Billionaires are racing to sidestep President Biden’s plan to raise their taxes, Vox. Movers and shakers in the wealth management industry are brimming with a cocksure optimism that they can outsmart the IRS.
“The wealthy will find ways around it,” predicted one wealth manager. “There’s too many ways — perfectly acceptable ways — to defer, minimize, or even avoid taxes.”
What wealth managers and pro-tax activists share is a belief that the Biden proposal poses more of a threat to millionaires than it does to billionaires — because billionaires often can be more patient when it comes to dealing with taxes, choosing the exact moment that they want to pay them. Millionaires will have to work harder to find clever workarounds.
The Biden plan would increase the federal rate for individuals making over $450,000 a year to almost 40 percent. It would increase the ultra-rich’s capital gains tax rate — the tax rate paid by wealthy entrepreneurs when they sell a company or wealthy investors when they sell a stock — to a sum of over 40 percent. The White House would end the so-called “Angel of Death” loophole that allows the wealthy to effectively avoid capital gains tax altogether by not assessing the tax if the asset is passed along to an heir. And crucially, Biden plans to increase the enforcement firepower of the IRS, a move that the administration thinks could raise over a third of the $1.8 trillion in revenue targeted by the tax overhaul.
And it’s true that these proposals have sent at least some of the ultra-rich screaming for the brake pedal, more than half a dozen wealth managers and accountants for some of Silicon Valley’s wealthiest families told Recode.
Over the last few weeks, more than a few wealthy executives and investors — including those who made their fortunes in the tech industry — have fired off emails and marched into meetings with their money managers in a state of panic. Would they really have to pay a capital gains tax that could mean more than half of their yearly earnings go to either the federal or California government? Would their children really be unable to access the intergenerational wealth that the family’s patriarchs and matriarchs worked so hard to build?
Yes, there are “mini freakouts in every client meeting we have,” said one wealth manager for Silicon Valley’s rich.
To prepare for a world in which Biden’s plans might become reality, wealthy people across the Bay Area are rushing to have their teams draw up legal documents to try to prepare for Biden’s plan potentially passing. One source relayed that tax lawyers he works with have already put out word that they will not take any more clients after September because they are anticipating so much last-minute 2021 business. Another said he’s noticed more and more clients talking about moving to tax-friendly Puerto Rico in the aftermath of the Biden proposal.
But there’s a litany of reasons that the tax experts aren’t as concerned as their clients are. And it’s not just because activists and wealth managers expect the Biden plan to be significantly watered down if and when it eventually passes Congress.
There’s the obvious — that the hike in the upper-most tax bracket matters little because the 0.01 percent don’t make their fortunes through a salary; they make it by founding or investing in companies. There’s the sorta obvious — that the increase in the capital gains rate can be circumvented if the wealthy avoid “realizing” the gain at a time when that higher rate is in place. And then there’s the even less obvious — that mega–billionaires can quite successfully go to great lengths to avoid ever paying a capital gains tax by using loans, charitable contributions, and a byzantine system of trusts to keep their fortunes from Uncle Sam.
To Gabriel Zucman, an influential progressive economist who studies tax payments from billionaires, the Biden plan has a “serious limitation.”
“If you’re Jeff Bezos or Elon Musk or the tech billionaires, it’s very easy to hold onto [your] shares and at the same time to borrow money to buy stuff — homes, private jets, or any type of consumption,” Zucman said. “The other thing in the Biden plan is to have taxation of capital gains at death. But obviously most of these tech billionaires are quite young, which means that they could still pay very little tax as a fraction of the wealth for many years and perhaps even several decades.”
Essentially, the tech titans will resist selling shares in a year when the Biden capital gains hike is in effect (not that active executives do much of that selling to begin with, out of fear of spooking the stock market). And that even if Biden succeeds with his plan to ax the provision that allows billionaires to ever avoid paying capital gains tax by bequeathing the asset to an heir — a privilege called the “step-up” basis, or the aforementioned Angel of Death loophole — Silicon Valley’s ultra-rich may have to pay more, but not until decades from now when they die.
The irony is that Zucman, the academic brains behind liberals’ calls for a wealth tax, largely agrees with the wealth defense industry on one key point: That the ultra-rich will be able to successfully fend off some of the Biden plan’s most intrusive proposals, potentially defanging the administration’s plan to raise hundreds of billions in tax revenue. The difference is that to Zucman, that’s why Biden needs to go even bolder. To wealth managers, that’s maybe why Biden shouldn’t even try.
“Regardless of where clients fall on the political spectrum, none of them are excited to pay more taxes”
“Regardless of where clients fall on the political spectrum, none of them are excited to pay more taxes,” said one wealth manager. “I never met a client, regardless of their political affiliation, that isn’t excited about proper estate planning.”
Billionaires or even regular-old millionaires hire these financial aides to preserve their assets. Beating the Tax Man is why they are paid. And so the industry in Silicon Valley is already strategizing about what exactly it will do.
When it comes to the capital gains tax, expect Silicon Valley titans to rush to lock in their gains at this year’s lower rate (assuming the final tax plan does not apply retroactively, a provision that will be vigorously fought.) That means that a rash of startups may look to sell toward the end of the year. Or that investors who feel they need to sell stock at some point soon may do so this year rather than next. Research on previous capital gains hikes shows that there is often a spike in realizations in the year before a new tax takes effect, according to Chye-Ching Huang, a tax policy expert at NYU.
Others may not sell at all, hoping that a new administration or a new Congress may reverse the cuts altogether. And in the meantime, billionaires may take out more loans using their stock holdings as collateral — a common practice for tech titans, as Zucman pointed out.
Wealth managers concede that evading capital gains tax at death will be difficult without the Angel of Death loophole. But they still have a few tricks up their sleeves. They say their clients in their wills will direct more and more of their appreciated fortunes to charity rather than to the US Treasury. (“Charity is a way of maintaining family wealth, not depleting it,” one wealth manager remarked.) They will — and in recent months, already have — ramp up their estate planning, which is the engineering of a complex web of trusts and companies that the rich build to pass money on to their heirs, part of an attempt to die while technically owning nothing in their name.
“If you’ve done a good job, you die with nothing,” remarked one aide to Silicon Valley’s ultra-rich. “In theory, the step-up doesn’t matter because you’ve already given all your assets to your kids, and so who cares? You spend your last dollar the day before you die.”
And even if avoiding the provision is impossible, the tax bill — and the tax revenue, to progressives’ chagrin — won’t come due until the billionaire dies. So for young tech billionaires, this is a problem for the distant future. Who knows what America’s tax policy will look like then? And for progressives, that means less money today to solve today’s problems.
Then there’s also the more general sense that the house always wins, so to speak. Wealth advisers are already trading ideas back and forth for new, underutilized tax hacks, for instance, that could be pursued more aggressively. It’s hard to predict precisely which loopholes will emerge in a new federal tax bill, but it’s remarkable that both tax activists and wealth advisers share this view that the tax avoidance industry will remain strong.
Biden’s plan seeks to combat that by spending $80 billion to beef up the investigative and enforcement capabilities of the IRS. But there is ample skepticism that the Biden plan will raise the $700 billion in revenue that it seeks — in part because the ultra-rich are so good at the cat-and-mouse game.
What is shaping up in Silicon Valley is a battle not just of laws and lobbying, but of wits and wiggle room. Tax activists concede that the wealth managers may have the upper hand in the short run, but hope that they will cut into the fortunes over the long run.
That money, says Huang, would allow America to “make permanent investments in children and families — that are not the heirs to multibillion-dollar families.”
How Greedy Corporations Turn the Black American Dream into a Nightmare, Institute for New Economic Thinking.
Government policies designed by the wealthy have enabled the corporate onslaught. Black households today remain twice as likely to hold zero or even “negative” wealth compared to white households. Read more
The plight of white blue-collar workers is well-known, but Blacks in that category were feeling the squeeze long before their white counterparts.
It’s 2021, and Black Americans still struggle harder to climb the socioeconomic ladder compared to whites. For many, the trip is now downward, a situation worsened during a pandemic that has impacted them disproportionately.
Economists William Lazonick, Philip Moss, and Joshua Weitz have been researching the key economic forces that have disadvantaged Black men for decades. In a new study focusing on those with only high school diplomas or less, they find that corporate greed – abetted by government policies designed by the wealthy – turned the dreams of once-upwardly mobile citizens into ashes.
From good times to hard times
To understand what happened, let’s time travel back fifty years to 1970.
Nixon was in office, the Temptations were topping the charts, and the first jumbo jet had just taken flight. Black people were moving up, their success fueled by the civil rights movement and opportunities in newly integrated workplaces. There was a mild recession, but Mike, a young Black man from Detroit, wasn’t lying awake at night. He had a good job at General Motors, and the union boss told him that any layoffs would be temporary — and cushioned with the union’s extra unemployment benefits.
Mike was the son of sharecroppers who left the South in the Great Migration. He had graduated high school in 1964, the same year the Civil Rights Act was passed to guarantee everybody equal access to employment, Black or white. Mike had soon landed a unionized position as a machine operator for GM. He liked his job and performed well. As the year 1970 closed, he got a raise that would help fund the purchase of his dream car, the sleek Chevy made in his division.
Mike saw GM as his home. The recession had passed and Mike kept his job. He planned to stay with the company long enough to buy a house, put his kids through school, and retire to enjoy his golden years in comfort. The American dream was fully within his grasp.
In 1970, young Black men like Mike were looking forward to joining the blue-collar middle class once closed to them. Up until then, only white men could expect to score the kind of post-World War II jobs that promised growing paychecks, decent conditions, solid benefits, and a career-long tenure at a single company. But now, with firms having expanded production in the ‘60s, plus support under the newly-created Equal Employment Opportunity Commission (EEOC) and federal subsidies for education, Blacks were leaving behind the dead-end jobs of Jim Crow.
For guys like Mike, determination and a high school diploma could translate into a life of security, and even better prospects for the kids. With parents able to save and plenty of good public schools, the children of the new Black blue-collar middle class could set their sights on the white-collar employment awaiting those with a college degree. They could do it because state higher education was inexpensive and sometimes even tuition-free.
By 1983, Blacks were only 9.2 percent of the U.S. labor force, but they made up 14.2 percent of all autoworkers and 13.7 percent of all union members. Well over a third of all Black men and one-quarter of all Black women in the country’s labor force were union members. They had every reason to assume that the future was bright.
But in the early ‘80s, a shadow began to fall over companies where Blacks held blue-collar jobs. Again there was a recession, but this time, a bunch of Mike’s co-workers got laid off. Mike was now a supervisor in his division, but he took a pay cut to help the company weather the storm. Still, he wasn’t too depressed. There had been hard times before at GM. Everybody had always come through it together, from the executive suite to the assembly line.
Soon, he, too, was let go. Mike’s boss said he would be rehired as soon as the economy improved. But somehow that never happened. The union that had always fought for GM’s employees, the United Auto Workers, suddenly seemed powerless. Mike had to take a non-union position as a forklift operator at a warehouse that paid half what he used to make.
Mike had always planned to send his daughter Janice to college. She liked computers and aspired to become a graphic designer. But that required a college education, and Mike just couldn’t swing it now. His income was unpredictable and tuition fees at the state university had gone way up. On top of that, the government had started charging extortionate interest rates on student loans.
Janice gave up the idea of a bachelor’s degree and enrolled at the community college a few years later. The boom in computer-related jobs of the 1980s and ‘90s happened without her. Instead, she became a receptionist at the city health department but lost her job in the Great Recession of 2007. Janice never found a similar position. Her husband, a laid-off transit worker, was serving time in prison on a marijuana charge. Their kids’ school was so neglected that she worried about their physical safety. Instead of growing up in safety and security, Mike’s grandchildren were learning survival skills on the street.
What social scientists call “intergenerational socioeconomic mobility” was not in the cards for Mike’s family and millions like it. Or at least not in the upward direction. Economic forces that clobbered one generation quickly toppled the next. And the next.
But what were those forces?
A meaner, leaner vision
Over the next two decades, the overall economy would prosper, but not for Black people like Mike. The Black blue-collar middle class shrank and shrank until it was all but obliterated. By the end of the century, white Americans without college degrees would find themselves on the same downward trajectory as Mike.
Some said what happened was the result of foreign competition. Others thought it was nervous consumers. Whatever it was, auto plants were closing and workers were cut loose, especially the Black ones with less seniority. Lazonick points out that if it had been whites getting kicked to the curb, companies and the government might have tried harder to intervene and see to retraining for workers displaced by international competition. But Blacks were on their own.
What Lazonick and his colleagues describe as “the most important socioeconomic progress for African Americans in the decade after the Civil Rights Act of 1964” was thrown into reverse.
The researchers also identify a culprit that nobody told Mike about: Wall Street.
They detail how in the late ‘70s, a new model of the economy was emerging that led corporate executives to look at workers differently. Instead of investing in them for the long run, many decided it was better to have a “flexible” workforce that could be hired and dispensed with at any time. Blacks were especially disadvantaged in the new model, explain the researchers, because of the “last hired, first fired” mentality dominating the unions.
The new model really took off when business schools, starting with Harvard, started preaching the new “shareholder value” vision in the mid-‘80s. Proponents claimed that corporations should focus on making as much money as possible for their shareholders — the people who hold the company’s stock— and never mind anything else. Profits shouldn’t be used to pay workers more, to invest in research, or to build plants. They should be used for Wall Street games that would ensure the money flowed into the pockets of shareholders and the executives who increasingly began to be paid in stock.
Those who hold the opposite view, including Lazonick and his colleagues, favor “stakeholder capitalism.” This model says that companies should consider all their stakeholders—not just the shareholders, but also employees, customers, and taxpayers. Companies that don’t do this may end up wreaking havoc, from environmental damage to driving inequality. If you’re only worried about enriching shareholders and executives, then why spend money curbing emissions? Or bother to pay workers decently?
Shareholder value thinking could even hurt the company itself in the long run. After all, how do you keep making good products and services without experienced, dedicated workers and investments in innovation? But increasingly, America’s executives weren’t thinking about the long run. They were focused on Wall Street and the value of their own stock options. As the researchers observe, “leading corporations lost interest in the fate of the American working class” — and so did the politicians who depended on their donations.
As the ‘80s progressed, the anti-government Reagan Revolution swept the country, making things even worse for the blue-collar middle class in general. Federal and state governments stopped investing in public education. Unlike many white kids, those of Black people like Mike had no intergenerational wealth to fall back on. They would have a much harder attaining an ever-costlier college degree. Even attending a good public high school was increasingly out of reach.
Over the decade, government jobs that provided another source of security for upwardly mobile Black people were getting cut. Meanwhile, Republican administrations did little but toss big favors to corporate executives, from gutting regulation to lowering their taxes. Everyone was singing the praises of the “free market” as the answer to all economic and societal questions. As Lazonick and his colleagues note, it’s not surprising that in the decades since shareholder value capitalism took hold, America has experienced a concentration of income and wealth not seen since the Gilded Age. The researchers describe shareholder value capitalism as “the not-so-invisible hand” that chokes opportunity for the working class, especially for Black people.
It has helped to create a new Jim Crow that exacerbates the centuries of harm already endured by Black Americans.
Restoring American values
Hard work. Education. Better opportunities for your children. A fair shot for everybody. These core American values have receded in the 21st century, largely due to economic ideas that seem to value nothing but the rich getting richer. And Black people, the researchers show, have borne the brunt of the damage the longest.
Jobs like Mike’s probably aren’t coming back on a mass scale, but America can support other directions for Black upward mobility. Lazonick and his colleagues recommend that for starters, corporations and the rich should be made to pay their fair share in taxes so that the government can invest in things that support the middle class, like education. If Americans are serious about racial equality, then they have to support affordable public education, a cornerstone of the Black middle class, and the advancement of its children into the white-collar economy.
The researchers also point out that America needs the secure business sector jobs it once had — the kind that allowed people like Mike to gain knowledge, skills, and experience for the long run and to contribute their talents over the course of a steady career. Government support for labor unions, they note, has been historically key to ensuring the benefits and conditions that translate into stability and security for middle-class families. It would help companies thrive and be more innovative, too, to retain and benefit from the talents of all the Mikes.
Lazonick and his colleagues believe it’s time to dump the shareholder value mentality into the dustbin of history. For them, that means taking steps to encourage companies to shift profits back to workers and into investments in capabilities and innovation. They are particularly down on stock buybacks, a form of Wall Street manipulation in which firms use their profits to buy shares of their own stock instead of using them to invest in more productive activities. Stock buybacks, says Lazonick, should be altogether banned. The Biden administration appears to be receptive to this argument.
The researchers also raise concerns about the types of relatively secure jobs that are today held disproportionately by Blacks — especially in policing and the mass-incarceration industries. They emphasize that prison reform movements have to take this into account when calling for the closure of facilities and defunding the police. People who become unemployed because of these closures need somewhere to go, and hopefully somewhere better. As Lazonick explains: “We don’t want to keep jobs in the mass-incarceration industries just because they are jobs. We advocate creating useful social services that could employ people who are now in the mass-incarceration industries—which is consistent with progressive demands for police reform.”
Bottom line: A thriving Black middle class is essential not only to racial and social justice in America but to the country’s future economic prospects. Nobody wins in the long run when the Mikes of America and their families end up living an American nightmare.
Also see Matt Stoller, Goliath: The Hundred-Year War Between Monopoly Power and Democracy. He is the Research Director of the American Economic Liberties Project.