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Written by: Eugene Steuerle
The Economic, Social, and Political Consequences
I have been involved in public finance for a half-century now and watched as continual efforts to expand wealth for the wealthy and consumption for the masses have dominated the direction of public policy for most of that period. Among their extraordinary consequences have been the following:
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Both parties spend little effort addressing modern problems and opportunities and mainly try to repeat past successes: tax cuts for capital owners and ever-more money for Social Security and healthcare.
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Falling through the cracks have been those programs that attempt to promote upward mobility, inclusive wealth building, and opportunity for all—those items that largely defined America’s success on the world stage for much of its history. The working class and the young have fallen behind when it comes to sharing in the growth in wealth and market incomes, primarily wages; Black and Hispanic people, on average, continue to have only a tiny share of household wealth.
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Many in these classes, sensing a loss of control over their lives, have increasingly abandoned the Democratic party but have no home either in the traditional (pre-Trumpian) or Trumpian Republican party.
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For several decades, the growth in total income for both low- and middle-income classes has come mainly from increased government net transfers (higher transfers and lower taxes), not increased market returns to work and saving.
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By promoting wealth inequality, Congress has reinforced dependence on government; by promoting dependence on government, it has reinforced wealth inequality.
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A sense of entitlement has infused every class, including the classes that have been winning out, at least relatively—the wealthy, older Americans, the well-educated, and the healthcare and financial industries—and has contributed to class conflict and the inability to come together to address our greatest needs and opportunities.
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Both Russia and China believe that they can create a new world order partly through disinformation campaigns that promote what they see as democracy’s internal wars of entitlement, focus on consumption, partisanship, and inability to sacrifice. They have been partially successful.
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When it comes to lifestyles, the most dramatic, government-led, social change over the past half-century has been the retirement (or availability of government retirement support) of close to one-third of the adult population for an average of more than one-third of their adult lives.
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Despite governing a country with an average household GDP of over $200,000 per household and average total spending and tax subsidies at the federal, state, and local levels of well over $80,000, elected officials feel they can do nothing new.
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Under existing laws, past legislators have already committed essentially every dollar of federal revenue, due to be collected now and forever into the future. Thus, current legislators can only enact any discretionary net increase in spending or net tax cut by adding to already huge deficits.
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To control budget deficits that have run amok, both parties must renege on promises they successfully built into the law to maintain high automatic spending growth and revenues that fall increasingly short of that spending. Neither is willing to bear the short-term political consequences necessary to achieve long-term gains for the nation or the classes that have been left behind.
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Even if we managed to control our deficits, how we spend government dollars would still define a budget for a declining economy.
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The President and Congress resort to cultural warfare to distract the public from their failure to perform jobs where they have substantial Constitutional authority and control. This strategy creates a more tribalistic and polarized society and explains the success of populists here and throughout much of the developed world.
The good news is that all these problems are easy to solve economically. They simply require allocating our growing revenues and knowledge toward modern opportunities, not yesterday’s needs or today’s latest cultural fight. It is the political quagmire that makes reform so difficult.