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A NATION IN SEARCH OF ANSWERS
FOR NINE DAYS, BARLETT AND STEELE HAVE HAMMERED AT PROBLEMS THAT COST
AMERICAN JOBS. HERE ARE THEIR CONCLUSIONS ON WHERE TO LOOK FOR SOLUTIONS.
By Donald L. Barlett and James B. Steele, INQUIRER STAFF WRITERS
The times are trying.
Corporations merge to form mega-corporations with far-reaching power and influence. Workers put in ever-longer hours to make ends meet. Families feel under siege. The gap between the country's richest citizens and average workers widens daily. The government imposes its most onerous tax burden on working people and families. And it taxes most lightly the nation's wealthiest citizens.
Political attacks have become so personal that good people are discouraged from running for office. Local governments compete with one another to lure new businesses by giving economic incentives to companies. Stories of government corruption appear with startling regularity on the front pages of newspapers.
America in the 1990s, right?
Wrong.
America in the 1890s.
To understand where you are today - and why - you might just turn back the clock a century.
To understand where you can be tomorrow, you might recall how citizens in that earlier era dealt with the same forces you confront.
There are, to be sure, differences between the America of the 1990s and a century ago. One stands out above the others.
Back then, a powerful reform movement took shape and a third party, the Progressive Party, brought about wholesale changes in the way government operated.
The Progressive Party's reforms were gradually co-opted, one by one, by the two major parties, the Democrats and the Republicans. By the time the Progressive Party passed out of existence, many of the changes it had proposed were in place.
Because government needed more revenue and the rich were not paying their fair share, the income tax was enacted.
Because businesses were peddling tainted meat, food and medicines, pure food and drugs laws were enacted.
Because companies were forming trusts that wielded unprecedented powers, the antitrust and monopoly laws were enacted.
Because half the nation's population was denied the right to vote, the women's suffrage law was enacted.
The reformers set a tone that produced yet more legislation in the decades that followed - from child labor laws to unemployment compensation, from minimum wage to Social Security.
All these changes resulted in a legislative framework to protect the average citizen and small businesses from the excesses of big business, special interests, and those who exploited others and used government to their own personal advantage. Over time, that framework gave rise to the largest middle class in history.
Now that framework is being dismantled. The economy that is evolving is balkanizing America - pitting social groups against one another, widening the gap between the have-mores and the have-lesses.
What is at stake is nothing less than the cohesiveness of American society, as the economy threatens to leave behind those without health insurance, without pensions, without good jobs.
This is not to say that Washington policymakers deliberately set out to enact laws and programs to set citizen against citizen, or to reduce American living standards. Indeed, many acted out of the best of intentions.
Too often, though, government policymakers have based their decisions on faulty assumptions or erroneous beliefs that have had unforeseen consequences. Nowhere is that more true than in policies that affect the U.S. economy.
How can we begin to restore a measure of fairness in American society, ease the gap between the have-mores and the have-lesses, halt the loss of good manufacturing jobs, and improve the condition of the beleaguered middle class?
Some specific suggestions will follow in a moment. But first, it's important to recognize that even "the best and the brightest" in government and finance make mistakes, and the point is that we must learn from those mistakes.
To borrow some advice from the philosopher George Santayana, "Those who cannot remember the past are condemned to repeat it."
For those who would put absolute faith in the infallibility of economic experts, there is this reminder:
On Oct. 16, 1929, Charles E. Mitchell, president of National City Bank of New York and the nation's leading banker, sent a cable to the financier Bernard Baruch, who was in Scotland, with this advice on the stock market:
"General situation looks exceptionally sound with very few bad spots . . . I doubt if anything that will not affect business can affect the market, which is like a weathervane pointing into a gale of prosperity."
Thirteen days later, the weather vane was pointing into an unprecedented storm, as the stock market collapsed, leading to the Great Depression.
In the 1950s, as government officials and scientists sought to persuade Americans of the wisdom of building a nuclear-power industry, B. Lewis Strauss, chairman of the Atomic Energy Commission, and Edward Teller, father of the H-bomb, painted a bright picture of an atomic future.
Strauss promised that "our children will enjoy . . . electrical energy too cheap to meter," and Teller dismissed even the concept of nuclear waste, saying that "these radioactive byproducts will turn out to be useful and will not be considered as waste at all."
You may check your electric bill to determine the accuracy of Strauss' forecast. As for the valuable nuclear byproducts, they turned out to be so hazardous that they have cost taxpayers and electric utility customers billions of dollars to store. And the final bill hasn't been tabulated yet.
U.S. economic policy has been marked by the same kind of errors of judgment. For decades, policymakers have consistently miscalculated the impact of their decisions on the American workforce.
In 1962, as Congress debated President John F. Kennedy's Trade Expansion Act that called for lower tariffs on imported products, Wilbur Mills, the Arkansas Democrat who chaired the House Ways and Means Committee, sought to allay concerns of some congressmen who worried it would cost American jobs.
Citing a letter he had received from shoe workers in his state who feared that shoe imports would soar under the trade bill, Mills told lawmakers on June 28, 1962:
"I do not believe this will happen to my shoe people. . . . In 1961 . . . imports of shoes as a percentage of U.S. production were still only 2.6 percent. This bill is not here, with my name on it, to bring about the sacrifice of any of these industries about which we are talking. This bill has safeguards in it."
Wilbur Mills was flat wrong.
His bill, others that followed, and decisions by presidents and trade administrators from both parties brought about that very "sacrifice" that Mills denied could ever happen, not only for the shoe industry - where imports now account for 85 percent of the American market - but for other American industries, as well. Remember machine tools, telephones, microwave ovens and roses, to name just a few.
Many of the themes currently shaping economic policy are based on equally false assumptions. One of the most popular is the widely touted theory that America's future depends on the creation of high-tech jobs.
Over and over we are told that high-tech jobs will be the salvation of the American worker.
"America's future is in high-tech work," Sen. John Breaux, Democrat from Louisiana, said in November 1993. "We're going to be making 747s and computers and the medical equipment for the rest of the world. Nobody can compete with American workers in those areas."
Foreign workers already are competing - and at much lower wages.
The belief that the United States will enjoy a monopoly on high-tech jobs, while developing nations concentrate on making labor-intensive products, is one of the fictions of American economic policy.
Developing countries already are targeting the high-technology field for job creation. Listen to this excerpt from a 1995 report of the Ministry of Finance of Malaysia, a country with a population of about 20 million people. The report's language about the challenge facing Malaysia - the need to move away from labor-intensive work and toward high-tech development - sounds eerily like the statements American politicians, corporate executives and economists make about the challenge facing the United States in the global economy:
"The need for Malaysia to move toward high-technology industries is becoming increasingly necessary, given that the country now faces shortages of labor with the rapid growth in the economy since 1988. Furthermore, other surplus labor countries, like Vietnam and China, are opening up their economies to foreign investors and Malaysia will no longer be able to compete for labor-intensive industries against these countries. Malaysian industries must restructure to go upscale in technology in order to remain efficient and competitive in a rapidly changing global environment."
Even under the best of conditions, there will never be an abundance of high-tech jobs - certainly not enough to replace the jobs that are being eliminated by imports.
VIEW FROM WASHINGTON
An illustration of how the view of America from Washington gets distorted: Many of these policies are tied to the chief statistical yardstick that the government relies on to measure our economic progress as a society - GDP. That is, the gross domestic product, the sum total of all goods and services produced in the United States.
Every month, newspapers, magazines, radio and television print and air the latest government report on the GDP, as though they were reading a thermometer on the nation's health.
New York Times, Jan. 29, 1994: "Stocks surged to record highs in a second day of heavy trading yesterday, after the Commerce Department reported that the economy grew at a 5.9 percent pace in the last three months of 1993 - the best quarterly performance in six years.
"But even better was the news, included in the report on the gross domestic product, that inflation remained low . . ."
The Philadelphia Inquirer, May 3, 1996: "Neither blizzards nor a government shutdown nor a strike at General Motors Corp. could keep the U.S. economy down. The nation's gross domestic product showed surprising strength in the first quarter of this year and grew at a faster-than-expected 2.8 percent rate."
This steadily rising GDP, the people on Wall Street and in Washington will tell you, is evidence that Americans are doing better than ever. But judge for yourself.
During the three decades between 1965 and 1995, the U.S. population went up 37 percent, from 194 million to 265 million. In that period, the GDP shot up 901 percent, from $719 billion to $7.2 trillion. But between those years:
- The number of people unemployed went up from 3.4 million to 7.4 million, and the unemployment rate went from 4.5 percent to 5.6 percent.
- The number of those unemployed for 27 weeks or longer jumped 270 percent, from 351,000 to 1.3 million.
- The unemployment rate for blacks and other minorities went from 8.1 percent to 9.6 percent.
- The number of new housing units started annually fell from 1.473 million units to 1.350 million units.
- The number of business failures soared 427 percent, from 13,500 to 71,200. The business failure rate went up from 53 percent to 86 percent.
- The number of personal bankruptcies filed went up 365 percent, from 180,300 to 837,800.
- The number of households in poverty headed by females went up 121 percent, from 1.9 million to 4.2 million.
The statistics fail to show a connection between a rising GDP and the economic well-being of average Americans.
Perhaps an even more troubling question about the validity of the GDP statistic as an indicator of the nation's economic health is this:
Does the GDP - which counts only those transactions where money changes hands and assigns no value to the purpose of the expenditure - measure the kind of society you would like to live in?
Consider:
If the cancer rate went up, more money would be spent on costly medical procedures, more people would be sent to hospitals for longer stays, all requiring the expenditure of ever larger sums of money, thereby pushing up the GDP.
If the number of people convicted of crimes went up faster, more money would be spent to build more prisons and hire more guards, thereby pushing up the GDP.
By now, you get the idea.
In short, the government's most widely publicized economic indicator - the one newspapers routinely report on their front pages, the one that television and radio broadcasters lead off their nightly reports with - does not really measure the health, well-being or stability of society.
SOME NEEDED REFORMS
So what can be done?
The list of possible reforms is long. The suggestions that follow are starting points, a place to begin the debate. Some could easily be implemented; others would be difficult.
TRADE
Global trade was promoted on the basis that it would benefit everyone. But the concept is valid only if there is true reciprocity - if each nation provides equal access to its own market.
That hasn't happened.
Instead, as foreign competitors discovered that Washington lacks the will to get tough on trade, they lowered tariffs but raised other barriers to entry of U.S. products into their markets.
Washington's response was to continue to negotiate agreements with countries that promise to open their markets, yet never do, at least not to the extent that the United States does.
This has been the story of U.S.-Japanese trade relations. Now, that history is being repeated with China.
When Bill Clinton went to Washington as president in 1993, developing the Chinese market was a high priority.
At hearings on her nomination as deputy U.S. trade representative, Charlene Barshefsky spelled out to senators the tough approach the Clinton administration intended to take:
"China's large and growing trade deficit with the United States, which in 1992 was $18.2 billion, is unacceptable. Multiple, overlapping barriers to U.S. imports exist, as do high tariffs that make it very difficult for highly competitive U.S. industries to penetrate China's markets.
"To address this problem, the administration is vigorously pursuing access through the October 1992 market access agreement, which will sharply reduce or eliminate principal obstacles to U.S. trade."
When Barshefsky testified, the U.S. trade deficit with China was $18.2 billion. In 1995, after three years of "vigorously pursuing" access to the Chinese market, the United States trade deficit with China stood at $33.8 billion - up 86 percent.
Inadvertently, Barshefsky's testimony showed why U.S. trade policy has failed so badly:
For years, U.S. policymakers have focused, single-mindedly, on exports. And they have dismissed imports as of little concern.
That attitude explains why the U.S. merchandise trade deficit went from an annual average of $10 billion during the 1970s, to $94 billion in the 1980s, to $125 billion in the 1990s.
Now, the emphasis needs to be changed from exports to imports, at least until trade is brought into balance. That means placing controls on imported goods.
Access to the world's richest consumer market should be granted on the basis of national interest, not because of a blind adherence to an abstract economic theory like "free trade."
Critics will complain that such a policy could set off a global trade war, that it would force up wages and risk inflation.
Perhaps.
But the Japanese have been managing trade for more than 30 years and no trade war has erupted.
As for wages, you might ponder this: Why do the people in Washington dismiss executive pay increases that go up 100 percent or 200 percent as of no consequence, yet call for restraints when the wages of working people go up 5 or 6 percent?
In any event, a new trade policy needs to look beyond simply balancing the books on imports and exports.
That's because, dollar for dollar, imports cost more American jobs than exports create. The reason: Imported products, especially those from developing countries, most often are made in labor-intensive industries, such as apparel. Goods exported by the United States, on the other hand, tend to be produced by industries that require less labor, such as agriculture.
To curb imports would require raising tariffs and other trade barriers on products from countries that have consistently failed to open their markets. If other nations, for whatever reason, limit access to their markets, then the United States needs to respond in kind. It's called fair trade.
Similar actions could be taken against countries whose governments support industries that undercut American industries, and against countries that require that part of the manufacturing be done locally as a condition of buying U.S. products.
Such changes must happen if the United States is to eliminate the trade deficit and preserve its vital industries, which it must do if it is to remain a world power.
IMMIGRATION
Restore immigration to pre-1990 levels and scale back the skilled-worker and guest-worker visa programs that have led to widespread abuses. Using immigration policy to create a labor surplus, thereby helping to hold down wages or limit wage increases, should never occur.
Adding to the foreign-worker glut is an army of illegal aliens. No one knows their exact numbers, but it is estimated they are in the millions. And that's after 2.7 million illegal aliens were granted amnesty in 1986 and allowed to become U.S. citizens.
The U.S. Commission on Immigration Reform, which was headed by Barbara Jordan, the former Democratic congresswoman from Texas who died in 1996, described the need for action this way:
"Curbing illegal movements into the country would . . . benefit the wage structure, working conditions, and employment opportunities of U.S. citizens, legal permanent residents and other authorized workers."
The commission took special aim at the group responsible for attracting illegal aliens: American businesses that hire illegal aliens, especially businesses that tend to violate other labor and workplace laws.
The most prominent non-agricultural industries that hire illegal aliens, the commission found: "construction companies, manufacturers of food products, manufacturers of apparel and textiles, eating and drinking establishments and hotel and lodging services."
"If employers were forced to comply with labor laws and reduce their reliance on unauthorized workers, it is likely that wages and working conditions would improve for the legal workforce," the report said.
To that end, the commission said it believed that stepped-up enforcement of all labor and workplace laws - from minimum wage to work safety - would be "an effective tool in reducing unauthorized work."
GLOBAL WAGES
Companies that produce goods in foreign countries to take advantage of cheap labor should not be permitted the kind of unlimited access to the American market that kills jobs here.
A solution: Impose a tariff or tax on imported goods equal to the wage differential between foreign workers and U.S. workers in the same industry. That way, competition would be confined to who makes the best product, not who works for the lowest pay.
Thus, if Calvin Klein wants to make sweatshirts in Pakistan, his company would be charged a tariff or tax equal to the difference between a Pakistani worker's earnings and what a U.S. apparel worker makes.
Or if Microsoft wants to have its computer programming done in India, the company would be charged a tariff or tax equal to the difference between the salaries of Indian and U.S. programmers.
If this, or some similar action, is not taken, the future is clear. Wages of American workers will continue to slip, along with their standard of living.
A 1992 World Bank study pinpointed what will happen if Washington continues the current course. Without mentioning the United States by name, economist Herman Daly of the University of Maryland and ecologist Robert Goodland of the World Bank had this to say about the consequences for a nation with a high standard of living when it embraces a global trading system in which most of the other nations are poor:
"If by wise policy or blind luck, a country has managed to control its population growth, provide social insurance, high wages, reasonable working hours and other benefits to its working class (i.e., most of its citizens), should it allow these benefits to be competed down to the world average by unregulated trade? . . .
"This leveling of wages will be overwhelmingly downward due to the vast number and rapid growth rate of underemployed populations in the third world. Northern [Hemisphere] laborers will get poorer, while Southern laborers will stay much the same."
TAXES
Reestablish the progressive income tax, which rests on the principle that tax rates should rise with income. This structure was in place from the beginning of World War II into the 1960s and 1970s, which coincided with the great expansion of the middle class.
In 1963, President Kennedy, a Democrat, began the process of dismantling the progressive income tax. Two decades later, President Reagan, a Republican, finished the job.
During the 1940s and 1950s, the top tax rate ranged between 81 percent and 91 percent. It should be emphasized that no taxpayers paid out 91 percent of their income in taxes. From 1954 to 1963, for example, the maximum rate of 91 percent was applied only to taxable income over $400,000.
After all deductions, and after income reached $400,000, the amount above that figure was taxed at 91 percent. That $400,000 would be worth about $2.3 million in 1996.
The top tax rate today might apply to, say, taxable income over $5 million, with the top rate at, possibly, 70 percent, rather than 91 percent.
To spread the tax burden more equitably, a dozen or so brackets should be added, down to a tax rate of 5 percent. The bottom tax rate in 1996 was 15 percent; the top rate was 39.6 percent.
To simplify the system, all deductions should be eliminated, as well as the preferential capital gains tax. All dollars would be treated alike. A middle-class working family whose income is derived solely from a paycheck would not be taxed at a higher effective rate than someone whose income is derived from speculating on Wall Street.
All this deals with the federal income tax. Truth to tell, state and local taxes are weighted even more heavily against middle-income and lower-income workers. To right this situation, the federal government could create a system of rewards and penalties when distributing federal moneys to the states. The more progressive a state's tax structure, the more federal aid it would receive.
And, finally, the corporate income tax. Thanks to sharply lower rates and a variety of tax concessions, corporations in the 1990s pay comparatively less income tax than corporations paid in the 1950s. During that earlier decade, corporations accounted for 39 percent of all income tax revenue; individuals supplied 61 percent. For the years 1990 through 1995, the corporate share dropped to 19 percent; the individual share rose to 81 percent.
To restore some measure of balance, the top corporate tax rate, now 35 percent, should at least be raised above the highest personal rate, 39.6 percent. In the 1950s, the top corporate rate was 52 percent.
A variety of corporate deductions should be eliminated or scaled back. These include the essentially unlimited deduction for interest payments and the carryover deduction of losses, both of which fuel mergers and takeovers. Also, foreign tax provisions should be amended so that U.S. multinational companies no longer would be able to move income around the world to escape payment of taxes.
ANTITRUST ENFORCEMENT
Over the last decade, the government has retreated from its role as trustbuster, backing away from the authority built up painstakingly over nearly 100 years to prevent business combinations that reduce, or threaten to reduce, competition.
Where once the government would block the merger of two major competitors, today it routinely rubber-stamps the formation of megacorporations.
Federal regulators in 1995 and 1996 let stand such combinations as Wells Fargo & Co.'s $11.6 billion acquisition of First Interstate Bancorp; Kimberly-Clark's $9.4 billion takeover of Scott Paper Co.; Chemical Bank's $10 billion merger with Chase Manhattan; Pharmacia A.B.'s $7 billion marriage with Upjohn Co.; Hoechst A.G.'s $7.1 billion takeover of Dow Chemical Co., to name a few.
The mergers, as you might expect, were accompanied by job losses.
The Wells Fargo and First Interstate union put 7,200 people on the street. Scott Paper shed 11,000 employees before its merger with Kimberly-Clark, then Kimberly-Clark cut 6,000 more. The Chemical Bank-Chase Manhattan marriage ended the jobs of 12,000 people. The Pharmacia-Upjohn merger eliminated 3,000 jobs. Hoechst A.G.'s takeover of Dow Chemical resulted in 8,000 layoffs.
According to Mergerstat Review, a firm that tracks corporate acquisitions, the merger wave in 1995 set a record at $266.5 billion, far outstripping the previous high of $177 billion in 1988, at the height of the corporate-takeover craze.
So far in the 1990s, the Justice Department has filed an average of just 16 civil antitrust cases a year in U.S. District Courts. That's down 63 percent from the 43 cases filed annually during the 1970s.
Similarly, the number of restraint-of-trade investigations conducted by the Justice Department plunged 64 percent, dropping from an annual average of 267 cases in the 1970s to 96 cases in the 1990s.
The antitrust laws are on the books; the government should start enforcing them.
GOVERNMENT REGULATIONS
As with so much of what happens in Washington, the trick is to strike a balance. Instead, the government too often moves between two extremes, either over-regulating business or, as is happening in the 1990s, seeking to end most regulations.
We must preserve the regulations that assure the quality of American life: pure food, safe medicines, clean air and water. These rules have evolved over a century. Less developed countries have fewer, or no, such protective rules.
U.S. businesses must spend money to comply with these regulations, while their competitors in foreign countries often are spared that expense. Sometimes the competitors are American-owned, sometimes foreign-owned. The result is an uneven playing field.
One potential remedy: Impose a tariff on imported products equal to the amount that American businesses must spend to comply with government regulations.
SOCIAL SECURITY AND MEDICARE
It is generally understood that shortly after the turn of the century, if not before, both the Social Security and Medicare systems will have to be drastically revised. They are running out of money. That means either a hefty tax increase, a reduction in benefits for retirees, a delayed retirement age, or some combination of all three.
One solution would be means-testing of benefits - restricting the programs to those within a certain income level. The system should be changed from a retirement plan for everyone to a retirement plan for those who need it. Again, the issue is one of balance.
In 1993, 453,833 retired people with incomes over $100,000 collected Social Security benefits. They received checks amounting to $6.6 billion.
That's the equivalent of all the Social Security taxes paid by 1.3 million young working families with incomes of $40,000 a year. A direct transfer from them to retirees whose incomes range from 2 1/2 to more than 25 times their incomes.
Everyone would continue to have Social Security taxes deducted from their paychecks, but benefit payments would be ended to individuals and families whose incomes exceed, say, two to three times median family income. That would be between $80,000 and $120,000. Social Security benefit payments to them would be stopped only after retirees had collected what they had paid into Social Security, with interest.
Medicare, too, should be means-tested. The inequity of America's health-care system was summed up by a Philadelphia physician: "I have patients who come to my office in chauffeur-driven limousines. They own three or four homes. And Medicare pays their bills. Does this make sense?"
This in a society in which 40 million or more people go without health care because they cannot afford it.
RETRAINING
Overhaul the existing retraining system, which now seems to benefit government and educational bureaucracies more than it helps displaced workers.
For one thing, the types of retraining classes offered need to be rethought. Too many of the courses are in fields where there already is a glut of workers, or where the pay is comparatively low.
Once classes are improved so they are truly useful, attention should turn to fixing inequities in the system. If workers lose their jobs because their company moves to Mexico, where wages are lower, they qualify for 78 weeks of unemployment benefits. But if workers lose their jobs because their company closes its factory in New York and moves to Mississippi, where wages are lower, they receive only 26 weeks of unemployment benefits.
The workers at the plant that relocated to Mexico can afford to take retraining courses for up to a year-and-a-half in another field.
Workers at the factory that went to Mississippi, on the other hand, are limited to retraining classes that can be completed in six months - meaning many will have fewer employment opportunities.
EXECUTIVE SALARIES
Corporations are free to pay their executives whatever they want. But that doesn't mean companies should be permitted to write off the full amount on their tax returns, shifting the cost to taxpayers.
One possible solution: Tie tax deductibility to a multiple between the highest- and lowest-paid workers. For example, if the lowest-paid worker earns $20,000, then the company would be precluded from deducting more than, say, 15 times that amount, or $300,000, for the pay of its CEO on its corporate tax return. The balance of the compensation would come out of the shareholders' pockets, rather than being partly funded by the taxpayers.
GOVERNMENT STATISTICS
As a result of ongoing cutbacks in federal spending, funding of the statistical branches of all federal agencies has been slashed, bringing into question the quality of government information, from employment statistics to tax data. This at a time when the government needs accurate data more than ever to make critical economic decisions.
Ironically, the cutbacks have occurred at the height of the computer age, as we enter the 21st century. Government statistics were more accurate and complete before the computer than since - yet the computer gives a seeming precision to the numbers that is not justified.
Also, longtime standard statistical yardsticks, such as the gross domestic product, should be scrapped and new formulas devised that more accurately reflect the health of both the American economy and society.
To that end, more than 400 economists have endorsed a proposed index called the GPI - the genuine progress indicator - which takes into account a variety of social and ecological factors that the gross domestic product does not.
Just one of those differences, according to Redefining Progress, a public-policy think tank in San Francisco, is: "GPI corrects for income and wealth distribution, so that economic gains going largely to the wealthiest Americans are not mistaken for benefits to the nation as a whole."
CAMPAIGN FINANCE AND LOBBYING
Absent sweeping reforms in campaign financing, all other reform efforts are likely to fail.
That's because the money flowing to candidates and political parties, in staggering amounts, comes from corporations, wealthy individuals, political action committees, and other interest groups - all with agendas that are often at odds with what is good for average Americans.
In 1995, according to a study of the Center for Responsive Politics, the Democratic and Republican National Committees took in nearly $60 million from donors - in a non-election year. And that did not include millions more given to individual candidates.
Campaign contributions not only elect candidates, they give the donors access to the lawmakers once they're in office. That's another benefit beyond the reach of average Americans.
Over the years, critics of the current system have generally agreed on the need for a number of reforms, including these:
- Impose a limit on the amount that can be spent to run for office.
- Ban contributions by political action committees to candidates.
- Close the loophole in campaign finance law that allows donors to circumvent limits on contributions to candidates by making contributions in unlimited amounts to political parties.
- Restrict the amount of out-of-state money that a candidate may accept while running for office.
Only by limiting the money that pours into politics will the power of special interests be curbed.
Their grip is so strong that even when relatively moderate reforms are proposed to help middle-class Americans, they are usually shot down.
Look no further than the 1995-1996 effort to revise immigration laws.
The Immigration Act of 1990, which opened America's doors to record numbers of immigrants, also greatly increased the number of skilled and guest workers allowed into the United States for extended periods.
As evidence mounted that the program has been abused and exploited by corporations - to secure more low-cost help and to hold down the pay of American employees - the House and Senate took up separate bills. Each would have scaled back, but by no means eliminated, employment-based immigration.
Legislation proposed by Sen. Alan K. Simpson, a Republican from Wyoming and a principal author of the 1990 immigration act, would have reduced the number of annual visas, instituted more rigid controls for issuing visas, and put a cap on the number of immigrant workers that companies could hire. It also would have required companies that import workers to contribute to a fund to train their own employees in the future.
"For too many U.S. workers, the impact of immigration includes adverse effects on their own wages and individual job opportunities," Simpson noted on introducing his bill on Nov. 3, 1995. "The bill's proposed changes in the employment-related classifications are intended to protect . . . U.S. workers, especially those who are first entering upon their careers . . ."
Simpson's proposals never had a chance.
Corporate lobbyists and groups such as the American Immigration Lawyers Association, whose members represent corporations and potential immigrants, joined to scuttle the reforms.
Describing the proposals as "draconian," they lobbied lawmakers - especially members of the Senate Immigration subcommittee, of which Simpson is chairman - to persuade their colleagues to reject Simpson's proposed changes.
They also mounted a public relations campaign to convey their message that America's high-technology companies would suffer if Congress curtailed the hiring of foreign workers.
"Our ability to get the best talent in the world is critical to us," Kenneth M. Alvares, a vice president of Sun Microsystems, a Silicon Valley computer-chip company, told the Washington Post. Restricting that ability "is going to kill us," he said. "We will not be able to compete."
By March 1996, Simpson found he had been outmaneuvered by corporate lobbyists, and, lacking support on his own committee, withdrew his proposal - but not without a parting shot at the corporate lobbyists who had sabotaged his efforts.
"I was working with the business community . . . to address their concerns," he said at a Senate hearing on March 7, 1996, "[but] each time we resolved one, they became more creative, more novel. . . . The business community so distorted everything we were up to, everything. . . ."
WHEN THEY TALK TAXES, WATCH OUT
As Simpson's immigration experience suggests, overcoming the influence of Washington's lobbyists will not be easy.
Any reform effort also will have to deal with this fact: The view of America from Washington is decidedly different from that in other parts of the country.
Consider, for a moment, the question of taxes, and the personal perspective brought to that subject by two men - Bob Dole, the Republican candidate for president in 1996, and Democratic incumbent Bill Clinton.
Dole says that taxes are too high and must be cut. Clinton boasts of having raised taxes on the very rich.
Neither talks about the real issue: Average Americans pay taxes at a rate close to that paid by the affluent.
Compare the tax bills of Dole, Clinton and a South Philadelphia family.
For 1995, the Doles reported income of $648,617. That includes $64,748 in tax-exempt income. Their total taxes - federal income tax, Social Security and Medicare, and all state and local levies - added up to $191,692.
That meant the Doles paid taxes at an overall effective rate of 29.6 percent.
The Clintons reported income of $322,030. That, too, included tax-exempt income of $5,956. Their total taxes - all federal, state and local levies - added up to $101,578.
That meant the Clintons paid taxes at an overall effective rate of 31.5 percent.
Now consider a South Philadelphia middle-class family, with one child, that lives in a rowhouse. The husband works full-time, at a salary of $25,000. His wife works part-time to supplement family income, bringing in an additional $12,000. Total income: $37,000. The middle-class family's taxes - federal, state and local - total $9,966.
That meant they paid taxes at an overall effective rate of 26.9 percent.
The Doles, with nearly 18 times as much income as the South Philadelphia middle-class family, paid taxes at a rate just 2.7 percentage points higher than that family.
The Clintons, with nearly nine times as much income as the South Philadelphia family, paid taxes at a rate just 4.6 percentage points higher than that family.
The moral: Whenever people in Washington talk about what they are going to do for your taxes, make sure you take into consideration your total tax burden. That's because the people in Washington over the last three decades engineered three critical revisions in the nation's tax structure:
- They slashed by more than half the top federal income tax rate paid by the wealthiest citizens.
- They raised Social Security and Medicare tax rates so that a surplus would be created, which is now being used to pay for other government programs. Those two taxes hit middle- and lower-income people hardest.
- They transferred what once were federal responsibilities to state and local governments, which also tax those at the top lightly, reserving their heaviest tax bites for people in the middle and at the bottom.
Forty years ago, the tax rates of an earlier generation of Doles and Clintons would have been several times higher than that of a South Philadelphia family.
SOME WERE DISSENTERS
While official Washington has enacted a succession of economic policies that have proven harmful to the middle class, not everyone in the capital subscribed to them.
Over the years, a handful of lawmakers have forecast - with uncanny accuracy - the consequences of legislation enacted by their colleagues. This has been true whether the issue was taxes, immigration or trade.
But few paid attention to them.
When Congress debated the Trade Expansion Act of 1962, to lower tariffs and promote global trade, some opposing congressmen foresaw exactly what would happen.
Rep. Glenn C. Cunningham, a Republican from Nebraska, told lawmakers more than 30 years ago, on June 28, 1962:
"I am convinced that we can never compete favorably with foreign countries, even when all trade and tariff barriers are removed. The cheap labor used in foreign plants means that their products can be shipped here and sold at less cost than comparable American-made products. Whenever this happens, thousands, and perhaps millions, of workers will be laid off and become unemployed. Furthermore, it will downgrade and undermine our entire economy . . ."
Other lawmakers said "free trade" would work only if American products were allowed equal access to foreign markets. As Rep. Victor A. Knox, a Republican from Michigan, put it on that same day in June 1962:
"Under the bill our domestic markets would be exposed to a rising tide of imports without sufficient safeguards against injury to domestic producers and without sufficient assurance of expanding overseas markets for American-produced goods. The bill promises more of the same in one-way reciprocity, with America giving and our so-called trading allies taking."
A LOSING PROPOSITION
James T. Hill knows about the uncertainty of America's future. It's his present.
For 20 years, Hill was a tool and die maker at AT&T's huge Shreveport, La., works, which manufactured residential and business telephones. Then in the 1980s, AT&T began laying off thousands of workers and shifted much of the production work abroad. Hill and his wife, who also worked at the plant, lost their jobs in 1988.
For the next 2 1/2 years, Hill worked for a Louisiana company, though at much less pay than he had earned at AT&T. In 1991, he heard that AT&T had openings for experienced tool-and-die workers.
When he inquired, an AT&T supervisor told him, "You can go to work in Kansas City." Hill said he asked, " `Can't you find anything closer than that?' He said, `Reading, Pa.' I said, `I'll take Kansas City.' "
So in 1991, the Hills relocated to Lee's Summit, a suburb of Kansas City, Mo., and home to what had been one of the largest manufacturing plants in the Bell System. Built in 1963, the sprawling 43-acre Western Electric plant had once employed 7,500 people making electronic circuits and switches.
When Hill arrived, the plant employed fewer than 1,000 workers, a victim, like Shreveport, of AT&T cutbacks. Though he was glad to be back in the Bell system, Hill soon found out that his new job was not secure either.
"When I got here, they said they were going to move this stuff to Richmond, Va.," Hill recalled. "So don't worry about buying a house and settling down. So I didn't buy a house.
"Then all of a sudden about a year and a half ago [1994], they said, `We're going to stay here.' So my wife and I started earnestly looking to buy a house. And we had found one that we were going to buy. Then about that time, they made the announcement that they were going to sell the business."
Faced with this new uncertainty, the Hills held off on buying the house. Rumors swirled around the plant. In the end, the business was sold in 1994 to Berg Electronics of St. Louis, which was vague about its long-term plans for the plant.
"They've had people [messed] up for four years now," Hill said. "The mess that people have had to go through is awesome - never knowing what is going to happen next. It's like every week, or every month, they thought they might come out with an announcement, `We're going.' That kind of [thing] works on people."
Hill got a transfer early in 1996 to an AT&T operation in Dallas that later was spun off as a division of Lucent Technologies.
In the meantime, Berg announced it would phase out the remaining jobs at Lee's Summit and transfer some of the work performed there to other U.S. plants.
Hill blames Washington policy-makers for the pressure that is driving down wages.
"They want all the manufacturing people to go back to $4.50 an hour," he said. "They are saying people shouldn't be making $11 an hour. They are killing us. People who make $15 an hour are able to buy cars and houses and stuff that keeps the economy going. They want everybody to take a cut in pay, but they don't want anybody who's making big money to take a cut in pay."
Hill, though, thinks there's a potential light at the end of this dark tunnel.
"If the government keeps allowing these companies to send stuff overseas, we're not going to make enough money to pay the politicians. That's probably when they're going to stop it," he said.
Copyright 1996 PHILADELPHIA NEWSPAPERS INC.
May not be reprinted without permission.
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