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The New Deal, Progressive Taxation & the Greatest Sustained Economic Boom in U.S. History

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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 06:07 PM
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The New Deal, Progressive Taxation & the Greatest Sustained Economic Boom in U.S. History
Business and financial monopoly class antagonism war profiteering We know now that Government by organized money is just as dangerous as Government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me and I welcome their hatred. Franklin Delano Roosevelt, on the eve of the 1936 presidential election

While George W. Bush has doled out trillions of dollars in tax cuts for the wealthy and hundreds of billions for a catastrophic war, our national debt has skyrocketed, social programs have become starved for funds, the income gap has widened to Gilded Age proportions, and tens of millions of Americans have suffered the consequences.

Yet, when politicians dare to suggest reinstating pre-Bush taxes on the wealthy to pay for much needed social programs such as health care, they are countered with dire predictions of financial collapse and accusations of class warfare.

There is indeed a kind of class warfare going on in our country, manifested as a reaction of wealthy right wing ideologues against any infringements on their prerogatives. Its history can be briefly summarized as follows:

1) Prior to the presidency of Franklin Delano Roosevelt great income disparity existed in our country, with the top 1% of individuals accounting for 17% of annual income and the top 10% accounting for 44% of annual income. (And thats not even counting income from capital gains, which create even greater income inequality.)

2) FDR, after ascending to the presidency in 1932, initiated a wide range of policies collectively referred to as the New Deal which had the effect of substantially reversing income inequality for the first time in U.S. history. These policies included: Progressive taxation; labor protection laws; and several policies to provide a social safety net for Americans and otherwise reduce income inequality, including the Social Security Act of 1935, the GI Bill of Rights, and the development of several policies to facilitate job creation.

3) FDRs New Deal was so successful that it lasted for several decades, despite tremendous opposition from the right wing elites whose wealth and power had been reduced. Then, beginning in the 1980s, right wing conservatives began to have success in dismantling the New Deal, such that today we have income inequality in our country that equals that seen in the pre-New Deal days.

Since todays right wing ideologues warn of dire financial consequences from any attempt to approximate the conditions created by FDRs programs, it is worth taking a close look at the effects of those programs as they played out over the several decades after they were initiated in the early 1930s:


Progressive taxation

A high top marginal tax rate is one of the mechanisms that FDR used to reduce income inequality, by making the wealthy pay their fair share of taxes(*). One good indication of progressive taxation is the top marginal tax rate, which is the highest tax rate paid on income above a certain level. You can see from this graph that, except for a brief high top marginal tax rate during and shortly after World War I, the only long lasting high top marginal tax rate in U.S. history began with FDRs presidency. It then continued at high levels, 70% or more, for several decades after FDRs death, until it declined precipitously at the start of the Reagan presidency in 1981. It continued to decline during the Reagan and Bush I years, then rose moderately during Bill Clintons presidency, before substantially declining again under Bush II.

* -- Some refer to high top marginal tax rates as income redistribution. I think that it is more appropriate to consider it as making the wealthy pay their fair share of taxes. The wealthy dont accumulate their money in a vacuum. Rather, they benefit immensely, more than most other Americans, from government programs and infrastructure (e.g., corporate charters, roads, airports, airwaves, electricity, fire and police protection, the courts, etc.) that allow them to accumulate and maintain their wealth.


Labor Unions

Labor unions are a great means for reducing income inequality because they empower ordinary workers with the means of negotiating fair wages and benefits in relation to their more wealthy and powerful employers. They also tend to increase the political awareness of their members, thereby facilitating greater citizen participation in the electoral process. Furthermore, they not only raise wages and benefits for their members, but do the same for non-members as well, since they provide all employers with incentives for offering fair wages, lest their members be tempted to join unions.

Table 1 in this article shows that prior to FDRs presidency the highest percentage of nonagricultural U.S. workers who were members of labor unions was about 10%. That percent rose precipitously during FDRs presidency and remained at close to 30% for several decades thereafter. However, with the anti-labor policies of the Reagan administration, the percent of workers in unions declined precipitously. And today only 13% of American workers belong to labor unions one of the lowest if not the lowest rates of union membership among the industrialized nations of the world.


Income equality following FDRs New Deal

The United States achieved unprecedented levels of income equality beginning with FDRs New Deal and continuing for several decades thereafter. Economist Paul Krugman, in his new book, The Conscience of a Liberal, discusses this issue:

Where the America of the twenties had been a land of extremes, of vast wealth for a few but hard times for many, America in the fifties was all of a piece. Even in the smallest towns and most isolated areas, the Time report began, the U.S. is wearing a very prosperous, middle-class suit of clothes People are not growing wealthy, but more of them than ever before are getting along. And where the America of the twenties had been a land of political polarization, of sharp divides between the dominant right and embattled left, America in the fifties was a place of political compromise Unions had become staid establishment institutions. Farmers cheerfully told the man from Time that if farm subsidies were socialism, then they were socialists.


The entrenchment of the New Deal in the United States over several decades

As noted in all the above accounts, the New Deal didnt just fade away after FDRs death. Instead, due to its stunning success, most of its components lasted for decades. Even the Republican Party gave up on trying to fight it. In 1952, Dwight Eisenhower became the first Republican elected to the U.S. presidency in 24 years. A large part of his appeal was that he demonstrated no inclination whatsoever to overturn the New Deal. This is what he wrote to his brother on the subject:

Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are. a few Texas oil millionaires Their number is negligible and they are stupid.


The long term economic effects of the New Deal

As I noted at the beginning of this post, todays right wing conservatives warn of dire consequences to our economy that would result from any attempt to increase taxes on the wealthy, even to the relatively moderate levels that existed just prior to the Bush II presidency. From these warnings you would think that the very high rates of taxation on the wealthy, starting with FDRs presidency and lasting for half a century, would have resulted in catastrophic economic consequences, notwithstanding the reductions in income inequality.

This chart shows median family income levels, beginning in 1947, when accurate statistics on this issue first became available. With the top marginal tax rate approaching 90% at this time, median family income rose steadily (in 2005 dollars) from $22,499 in 1947 to more than double that, $47,173 in 1980. Then, for the next 25 years, except for some moderate growth during the Clinton years, there was almost no growth in median income at all, which rose only to $56,194 by 2005 (85% of that growth accounted for during the Clinton years). However one wants to interpret those numbers, nobody could possibly conclude that they indicate overall bad financial consequences accruing from high tax rates on the wealthy. To the contrary, as Krugman notes, this period coincides with the greatest sustained economic boom in U.S. history.

It is also of interest to consider the effects on our national debt, which has currently reached unprecedented levels, and which really does portend a financial crisis in our country. This graph, which shows change in our national debt by year, says it all:



Note the two huge mountains of increasing national debt in this picture. One began with the Reagan administration and went on for the 12 years of Reagan and Bush I presidencies. Then following 8 years of precipitous decrease in the rate of debt accumulation, the onset of the Bush II presidency was marked by another, even more precipitous increase in debt accumulation than was the Reagan presidency. In other words, where we have seen huge tax reductions for the wealthy we have concurrently seen huge increases in our national debt, with no compensatory increase in median income.


Our current status

Today, 46 million Americans are without health insurance, which results in thousands of premature deaths every year, including thousands of infants; approximately 7 million Americans who want jobs are unemployed; 12% of American households lack adequate food; approximately 3 million Americans are homeless in any given year; and 37 million Americans are in poverty, while the poverty rate continues to rise under George W. Bushs administration.

Despite all this, and despite the fact that income inequality has risen back to pre- New Deal levels, most Americans are better off today than they were prior to the Great Depression of 1929. Krugman explains why:

Though the inequality of income (prior to the Great Depression) was no greater than it is now, the inequality of living conditions was much greater, because there were none of the social programs that now create a safety net, however imperfect, for the less fortunate. All the same, the family resemblance between then and now is both striking and disturbing.

The social programs that Krugman refers to, of course, were those created by FDR and extended by some of his successors, especially including Truman, Kennedy and Johnson. But those are precisely the social programs that George W. Bush and his fellow right wing ideologues would desperately love to completely dismantle.

These ideologues would like to dismantle all government programs that have been created for the well being and protection of American citizens to let all fend for themselves, so long as they have the money to do so. Naomi Klein, writing in The Nation, recently explained how this kind of philosophy promises to work out even with regard to such government services as Americans have long taken for granted. Referring to the recent California wildfire tragedy, and the private fire fighting services purchased by some wealthy Californians, she writes:

There were a few instances, one of the private firefighters told Bloomberg News, where we were spraying and the neighbors house went up like a candle. With public fire departments cut to the bone, gone are the days of rapid response, when everyone was entitled to equal protection. Now, increasingly intense natural disasters will be met with the new model

The new model of course means continuing to dismantle New Deal programs and any program which serves the great majority of Americans. This has been the goal of the right wing ideologues ever since their idyllic world was interrupted by FDR and his New Deal. When the wealthy right wing ideologues have so many hundreds of times more wealth than everyone else they see no reason for government programs that benefit other people. Such programs require taxes, and those taxes reduce their own wealth and power. As far as theyre concerned, the ideal state of affairs is for them to have so much money that every government program other than the military can be safely eliminated.


Lessons for todays liberal/progressive politicians

Between 2002 and 2006, right wing ideologues in our country and the Republican Party that represented them controlled the presidency, both houses of Congress, most of the federal judiciary, our national news media, and a great proportion of the wealth in our country. Yet, to distract from this eye opening truth they continually referred to liberals who would dare to question their policies as the liberal elite.

These are the same types of people who aggressively fought FDR in his attempts to reduce poverty and create a sizable middle class in our country. FDR was not at all timid about confronting them and explaining the situation to the American people, as he did when he accepted his second nomination for President:

Throughout the Nation, opportunity was limited by monopoly. Individual initiative was crushed in the cogs of a great machine. The field open for free business was more and more restricted. Private enterprise, indeed, became too private. It became privileged enterprise, not free enterprise.

An old English judge once said: "Necessitous men are not free men." Liberty requires opportunity to make a living a living decent according to the standard of the time, a living which gives man not only enough to live by, but something to live for.

For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labor other people's lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness.

Against economic tyranny such as this, the American citizen could appeal only to the organized power of Government. The collapse of 1929 showed up the despotism for what it was. The election of 1932 was the people's mandate to end it. Under that mandate it is being ended.

Todays liberals should not be hesitant to meet this issue head on. The myth that policies that reduce income inequality hamper financial growth is easily disprovable, as New Deal policies clearly resulted in just the opposite of that for several consecutive decades. The idea that policies that reduce income inequality are somehow unfair to the wealthy are equally absurd. All Americans should have the opportunity to work, and all Americans who work should be able to earn a decent living through their work. Thats what the American Declaration of Independence says. If wealthy right wing ideologues dont like that idea, they can go somewhere else. FDR wasnt afraid to tell it like it is, and he didnt exactly have to pay a political price for his courage. Todays politicians could do a great deal of good for our country and for themselves by striving to emulate him.
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Mojambo Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 06:20 PM
Response to Original message
1. Another home run. Kicked and recommended. n/t
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 09:45 PM
Response to Reply #1
8. Thank you
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OHdem10 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 07:07 PM
Response to Original message
2. The GOP under Hoover had driven this country into a ditch
the Great Depression. Guess what THE GOP under GWB has us headed
in the same ditch once again.

The Democrats had better study this and other papers quick.
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 05:27 AM
Response to Reply #2
11. Yep, I believe you're right -- Bush is heading us towards a depression
What worries me even more than that is that he's heading us towards WW III.

Why Congress won't impeach him is beyond my comprehension.
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SammyWinstonJack Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 07:11 PM
Response to Original message
3. K&R
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hfojvt Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 07:32 PM
Response to Original message
4. kick
the title alone deserves two snaps up.
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 01:22 PM
Response to Reply #4
19. The title
Yeah, it's very telling, I think, how such a simple and clearly evident truth has come to be almost a politically forbidden subject in our country.
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AllieB Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 07:40 PM
Response to Original message
5. Kick
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mzmolly Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 08:03 PM
Response to Original message
6. An excellent post.
:toast: Krugman appears to have stolen the title of Wellstone's book, however?
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Nov-13-07 11:11 PM
Response to Reply #6
9. Thank you -- regarding the title of Krugman's book, the only thing that comes to mind is
Great minds think alike.
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sorrywrongemail Donating Member (111 posts) Send PM | Profile | Ignore Tue Nov-13-07 08:32 PM
Response to Original message
7. wow!! n/t
n/t
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 09:32 AM
Response to Reply #7
15. Welcome to DU sorrywrongmail
Hope you like it here :toast:
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sss1977 Donating Member (206 posts) Send PM | Profile | Ignore Wed Nov-14-07 12:36 AM
Response to Original message
10. Awesome post, thank you!
I especially liked the quote, "There is a tiny splinter group, of course, that believes you can do these things. Among them are. a few Texas oil millionaires Their number is negligible and they are stupid."

Haha, talk about Eisenhower having a crystal ball. And yet despite their number being small, and their intelligence being small, they were able to change the world for the worse half a century later.
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 07:36 AM
Response to Reply #10
12. Thank you -- Yeah, those were the good old days
When "liberal Republican" wasn't an oxymoron and our president wasn't trying to turn our country into a fascist dictatorship. Eisenhower even warned us of the Military Industrial Complex.

It doesn't take very many evil men to change the world for the worse if people don't recognize what's going on or won't stand up to them. Hitler proved that, and we should have learned the lesson then. But too many Americans, unfortunately, think that we're so special that it can't happen here.
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 09:27 AM
Response to Reply #10
14. Self delete -- wrong place
Edited on Wed Nov-14-07 09:32 AM by Time for change
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AX10 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 07:57 AM
Response to Original message
13. K/R
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Armstead Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 09:45 AM
Response to Original message
16. Great Post
You have done a great job at describing the core economic issue(s) today.

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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 04:49 PM
Response to Reply #16
21. Thank you
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sundancekid Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 09:59 AM
Response to Original message
17. shrubby has ALWAYS been about "starving the beast" and reducing to "bathtub size" ... so,
how in the jeebus can ANYONE believe that ANOTHER CORPORATIST POWER BROKER will alter the fundamentals????

'zactly - I would NOT be a person voting for billary ... the scales have fallen from eyes, thank you very much
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 11:38 AM
Response to Reply #17
18. That's true, we don't need another corporatist power broker
That is one reason why Hillary is at the bottom of my list for the Democratic primaries.

However, I do believe that she will be much better than any of the Republican candidates. There is every reason to believe that all of the leading Republican candidates will be very close to Bush on economic issues. Maybe a little better.

Keep in mind that Hillary and Bill are very close politically, and there is every reason to believe that she will govern much like him. Maybe she will even do better, having learned from his mistakes. There are a lot of things that Bill did that I am not happy about, especially in retrospect. However, he was a HELL of a lot better than Bush. Bush's first priority was to give away hundreds of billions of dollars to the wealthy. He did that and he kept on doing it. And the national debt rose tremendously under him. Bill, on the other hand, raised taxes on the wealthy and brought our national debt under control. I think that there is a world of difference between him and Bush, and there will be a world of difference between Hillary and Bush as well, though I would certainly prefer someone like Kucinich or Edwards.

I could be wrong, of course. Maybe Hillary would be as bad as the leading Republicans. But she certainly couldn't be any worse than them. And she may be a whole lot better.
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 03:31 PM
Response to Original message
20. The "trickle down" ideology
The idea (or excuse) behind Reagan and Bush's variety of policies that favor the wealthy (income tax cuts for the wealthy, subsidies and deregulation of corporations, large cuts on capital gains taxes and inheritance taxes) is that making the wealthy wealthier acts as a spur to the economy, thereby improving the economic future for everyone.

Aside from the fact that there is no evidence whatsoever to support this ideology, it doesn't make much sense. When the wealthy get wealthier they use their extra wealth to increase their political clout, which they use to cut social programs that benefit everyone and give themselves additional breaks. It can be a never ending cycle unless somethng or someone intervenes to stop it.

When the poor or the middle class increases their wealth, on the other hand, that additional wealth tends to go back into the economy as they use their additional money to purchase the necessities of life and other good and services that make life worth living.
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Time for change Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-14-07 05:42 PM
Response to Original message
22. I would highly recommend Krugman's book
He's an economist, and usually I find the writing of economists very difficult to wade through. But he write's so clearly that he's a pleasure to read.

Here's what he has to say on the concentration of wealth in our country today:

Yet you can't understand what's happening in America today without understanding the extent, causes and consequences of the vast increase in inequality that has taken place over the last three decades, and in particular the astonishing concentration of income and wealth in just a few hands. To make sense of the current wave of corporate scandal, you need to understand how the man in the gray flannel suit has been replaced by the imperial C.E.O. The concentration of income at the top is a key reason that the United States, for all its economic achievements, has more poverty and lower life expectancy than any other major advanced nation. Above all, the growing concentration of wealth has reshaped our political system: it is at the root both of a general shift to the right and of an extreme polarization of our politics.


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TooMuch Donating Member (3 posts) Send PM | Profile | Ignore Thu Nov-15-07 09:35 AM
Response to Original message
23. Campaigning Against Extreme Inequality
Some serious mobilizing on behalf of FDR-era top marginal tax rates is beginning to take shape. This past summer, the AFL-CIO hosted an initial get-together of a new Project on Extreme Inequality. The PowerPoint presentation that introduced this session is available online at http://www.cipa-apex.org/toomuch/Extreme_Ineq_PDF.pdf.
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