President Bush has called for creating an “ownership society.” In a true ownership society –where all Americans share a piece of the economic pie –there will be secure retirements, a more vibrant economy and more entrepreneurs creating things we cannot even imagine.
President Bush is using the phrase “ownership society” as a way to sell Social Security privatization. He is misleading. He’s not creating a real ownership society and a Social Security fix is really not urgently needed. The Social Security fund is secure until nearly the middle of the Century. With one change to Social Security, it would be protected throughout the Century and beyond. Currently, 6.2 cents out of every dollar of salary is taxes for Social Security up to $90,000 –a limit put in place in 2003. This is a flat tax that is particularly burdensome on low and middle income workers. By lifting this ceiling and taxing all income, Social Security will be secure and the U.S. will take a small step toward correcting the tax imbalance created over the last two decades where the wealthiest have gotten huge tax breaks while the rest of us have paid more of the cost of government. (Why shouldn’t income from wealth be taxed at least as heavily as income from labor?)
However, securing Social Security is not enough to fix retirement. Pension plans and savings are the two other legs of the traditional retirement stool and both have been undermined in recent years. Savings by Americans is at a low while families struggle each month to pay their bills under an increasing debt load. Indeed, in the first quarter of 1999 the national savings rate turned negative for the first time since the Great Depression. At the same time, companies have broken long-standing pension promises to their employees and retirees undercutting the ‘economic fabric’ of retirement security of millions of people. Congress needs to take action to prevent corporate raiding of retirement plans.
We can fix retirement with policies that share the wealth of the country in a more equitable way. The United States needs to face up to the unfair division of wealth among its citizens. The financial wealth of the top one percent of households now exceeds the combined wealth of the bottom 95 percent. The wealth divide will continue to worsen as the top 1 percent’s income equals the income of the bottom 100 million income earners. The ratio comparing the salary of CEO to worker which was 42 to one in 1980 is 420 to one today. This, along with a financial market that only loans money to those who have the resources to pay it back, ensures that the rich will get richer and the poor will get poorer.
Americans rarely are able to move to a higher economic class than they were born in. That is one reason why the median financial wealth of African-Americans (net worth less home equity) is $200 while that of Hispanics is zero. The percentage of black households with zero or negative net worth is 31 percent –double that of whites. Our economic policies are creating a lower class that cannot escape being poor and is a drag on the economy and a cause of many social ills.
There is a crisis in retirement and the division of wealth — by solving the latter we solve the former. This division needs urgent attention, but the political donor class will have to be challenged to correct the rules that have created this imbalance. Two decades of trickle down economics shows it results in the wealthiest soaking up more wealth –more wealth than they or their heirs can spend –without trickling down much for anyone else.
When the Social Security system was being put in place President Roosevelt was spurred along by an alternative that was being put forth by Huey Long, a populist Democrat from Louisiana who stood on the side of the common people against Big Business and Wall Street. Long put forward a plan entitled “Share the Wealth” as a response to the greed of the wealthiest in the 1920s –the last era to have a rich-poor divide as wide as ours. His share the wealth plan would ensure that all Americans had a stake in America, more entrepreneurial capitalists were created and all had a secure retirement with their piece of the largest economy in world history.
Long was not alone in these types of views. Thomas Jefferson included in his draft of the Virginia Constitution of 1776 a provision that every person of voting age “neither owning or having owned 50 acres of land shall be entitled to an appropriation of 50 acres.” Even leading free-market advocates like F.A. Hayek and Milton Friedman recognize that everyone”s freedom and security is enhanced by a guaranteed minimum income and that government providing that is not inconsistent with “the preservation of individual freedom.”
Long’s plan was a variation of a concern raised by Plato who argued that a republic is endangered when its policies allow personal wealth disparities to exceed five to one. Long’s plan allowed for a one hundred to one ratio. When Long announced his plan in a 1934 speech the public reacted strongly and Roosevelt took notice. Long ridiculed the New Deal as the same Old Deal where wealth and ownership remained concentrated in the hands of a small percentage of the population.
Long proposed that a capital levy be placed on fortunes over the one hundred to one ratio and that a commission with leading capitalists, people like John D. Rockefeller and Andrew Mellon, be appointed to determine best how to share the wealth among the public. His hope was that the surplus wealth levy would result in the creation of a corporation that issued stock to the people in an equitable way determined by Congress much like occurs in Alaska where each year since 1982 Alaskans receive their share of the oil wealth as part of the Permanent Trust –which has become an economic engine for the state. We need to share the wealth so that all Americans would share the wealth of the country.
When he conducted the first modern polls used by a president, Roosevelt became concerned. He found that Long had support not only in the south but outside his home region especially in the mid west. Long’s political threat encouraged Roosevelt to create Social Security, place new taxes on the rich, increase the inheritance tax and put in place a graduated corporate income tax. Roosevelt moved to steal Long’s thunder.
The rich-poor divide is back and no elected official is facing up to it. By placing a capital levy on extreme wealth –perhaps over $500 million –and sharing the wealth all citizens will be able to participate in an ownership society. This will provide Americans with capital that can be used for creative entrepreneurship, savings or investment.
For real ownership to occur, the purchase of corporate stock must mean something –stock holders given power to make decisions for the company they own –through votes. Broad-based corporate ownership will help control the unfair CEO-employee pay ratio, the destruction of pension plans and the theft from small investors –even corporate investment in a sustainable economy aware of environmental costs. Indeed, pension plans invested in the market should result in those whose money is invested having ownership control of those companies.
For a real solution to the retirement issues that we face we need to move to a society with broad ownership and shared wealth. As James Madison warned: “the day will come when our republic will come to impossibility because its wealth will be concentrated in the hands of the few. When that day comes we must rely on the wisdom of the best elements in the country to readjust the laws of the nation to the changed conditions.” The day has come when the wealth divide has become so great that laws must be put in place to bridge the chasm –or we have before us the roots of our undoing.
KEVIN ZEESE is a director of the Campaign for Fresh Air and Clean Politics in Maryland and can be reached at firstname.lastname@example.org.
Jeffrey Gates, Democracy at Risk: A Populist Vision for the Twentieth Century, Rescuing Main Street from Wall Street, Perseus Publishing (2000).
Jeffrey Gates, The Ownership Solution: Toward a Shared Capitalism for the Twenty-First Century, Perseus Press (1998).
David Cay Johnston, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich –And Cheat Everyone Else, Portfolio (2003).