A COMMON SENSE PLAN to LEVEL THE PLAYING FIELD&REBUILD THE MIDDLE CLASS

The middle class in America has been on the decline for over 40 years thanks to economic policies that have enriched the super-wealthy and megacorporations. The middle class has become hollowed out because its members have had too much money to qualify for programs providing economic assistance to low-income families but not enough money to benefit from the tax breaks and other policies that have helped the super-wealthy expand their share of the pie.

In1970 families classified as upper income earned approximately 29% of all income generated in the US and in 2018 upper income families earned approximately 48% of all income generated in the US. Meanwhile, those families classified as middle income earned approximately 62% of income generated in the US in 1970 and in 2018 those families earned approximately 43% of all income generated in the US.

The American middle class was the economic engine of the world at one time and it needs to be rebuilt and strengthened by ensuring that Americans at the bottom of the socioeconomic ladder can get into the middle class and those in the middle class are secure in that status with little risk of falling out.

1. THE MIDDLE CLASS

The term middle class has a meaning beyond dollars and cents. It is a lifestyle that a person’s economic circumstances allow the person to live. This lifestyle is being able to pay for the person and their family’s costs of living, including a home, a car, an annual vacation, and saving for the future and for retirement while working 40 hours a week. This is what our grandparents, and to a lesser degree, our parents were able to do in the American economy. This was what defined the American middle class in the past and it is the bare minimum of what the American economy should be able to deliver to middle class workers today.

2. Embracing American Capitalism - Restoring Competition is Key

We learn in high school that capitalism works because of competition. There was a time in our past when capitalism left without government regulation, known as laissez-faire capitalism, which led to robber barons and the Gilded Age. The US enacted antitrust laws and other regulations to ensure competition and put guardrails on business practices, harnessing capitalism and amplifying its benefits while reducing its costs. 

Our government has systematically dismantled many of these laws and regulations over the last 40 years. Because of this competition has declined and wealth has begun to concentrate in the hands of a lucky few one again. Companies have gotten larger with greater global footprints leading to fewer American employees. American’s have lost purchasing power as mark-ups on goods have increased from 21% in 1980 to 61% in 2019. The rate of start-up company formation has declined by 50% from the 1970s and high-growth companies have declined, which has led to lower hiring. Further, wages have stagnated or fallen with the median income being $72,375 (adjusted for inflation) in 1980 to $41,535 in 2020. Finally, businesses have drastically reduced research and development investments, resulting in a scenario in which research and development dollars totaled $404 billion while stock buybacks totaled over $1 trillion in 2018.Making the rich richer and leaving us vulnerable to foreign countries beating us on the innovation front

Smaller urban, suburban, and especially rural, communities have been hurt most by this shift. Smaller and locally-based businesses have been shown to return more money to the community. Further, communities with higher concentrations of small, locally-owned businesses have been shown to have higher wages and lower poverty rates.

It is time that our leaders address these kitchen table issues and help everyday Americans regain their footing. We can do this by taking the following actions.

A. Reshore Supply Chains

The first step in rebuilding the middle class is to provide incentives in the form of grants, loan programs, or tax credits for companies in industries that are deemed vital to national security (e.g., the production of pharmaceuticals, semiconductors and microchips, medical supplies, and food). Bringing such production back to the United States will increase employment and will help ensure a supply chain that is more resilient to international shocks meaning the middle class will have greater assurance as to product availability, consistent prices, and employment.

B. FIGHT INFLATION - Reduce Corporate Consolidation and Increase Competition

Inflation is running rampant now and one of the best ways to address it is to increase competition among companies. Antitrust law needs to be revamped by congress. At the same time profit margins for the largest corporations are increasing and the rich are getting richer at a faster pace than ever. This suggests that a significant portion of inflation is due to price gouging or corporate greed. In a truly competitive market, this type of conduct would be punished by competitors seeking an opportunity to grow their business through better pricing. We don’t have the necessary competition right now so we need to create it.

First, congress should pass legislation obligating the Federal Trade Commission to examine more than just the effect on consumer pricing when determining whether to challenge large mergers and acquisitions. The FTC’s examination should include the impact on the communities in which the businesses are located, the potential effects on employees and thus the underlying economy, the environment, and other similar factors when determining whether to approve mergers. The FTC should also embrace a more investigatory role and seek to limit non-compete agreements, exclusivity arrangements, and franchise-dealership arrangements.

Congress should also conduct a thorough study of US industries and make determinations on those industries that are instrumental in maintaining democracy and national defense (e.g., internet service providers, high-tech manufacturing, food manufacturing and production, and media). Such industries should be further examined to ensure that there is sufficient competition in the marketplace to ensure robust innovation, supply, and competitiveness. Where there is determined to be a lack of competition, steps should be taken to increase competition either through incentives for startups or through breaking up of existing monopolies.

Attention must also be given to existing incentive programs, loan programs, and tax subsidies to make sure they are targeted at true startups, high-growth companies, and possibly those companies in an industry deemed important to the national defense of the US. These incentive programs, loan programs, and tax subsidies need to be designed so that huge corporations or their subsidiaries, franchises or dealerships are not able to access them.

C. Regulate Wall Street

A part of restoring competition in the real economy is modernizing our securities laws to make sure that companies are able to raise the money they need to grow their businesses while ensuring that investors are protected. Many middle class Americans are invested in the stock market through their retirement savings (e.g., IRA or 401K). Americans should have the confidence to know that when they invest their money is treated the same as the Wall Street pros. To do this we need to make the following changes to the laws governing our securities markets:

  1. Congress needs to look to eliminate the ability of large institutional investors to buy and sell publicly traded securities anywhere but on the public exchanges. Currently large investors are able to use non-public dark pools to trade stocks which allows those investors to avoid impacting markets with their large orders or adversely affecting the price of the stock based on the trade. This allows some investors to sell stocks knowing the price is going to go down while the rest of the investing public is buying those same stocks without such knowledge. 

  2. Prohibit the practice of paying for order-flows in which large market makers will pay brokers for the brokers’ customers’ securities orders rather than taking those orders to the exchanges. This practice distorts the prices paid by investors for stocks and bonds. Congress should prohibit this practice so that all investors are utilizing the same pricing information and large institutional investors do not get access to special pricing information.

  3. Prohibit stock buybacks by the largest companies and those stock buybacks by other companies that are not tied to legitimate business purposes (e.g., a merger or acquisition). Stock buybacks are a form of price manipulation used by the largest companies to inflate the value of a company’s stock, and therefore the compensation of many of its executives, without actually growing the business and further stifling wages and business investment.

Congress needs to enact clear disclosure rules for investment advisors and brokers so that clients know exactly how these entities and individuals are being paid and the investing public can evaluate the advice that is being given.

3. Rebuild and Strengthen the Middle Class

Fewer and fewer people are moving up to the middle class and those in the middle class are in greater and greater danger of falling out of the middle class. We need to strive for Americans working 40 hours a week to be able to move into the middle class and while increasing business competition is a key component to that, we also need to make changes on the labor side of the equation.

A. Pass “Human Infrastructure” Proposals

The White House’s human infrastructure proposals are critical to our future. These policies allow for middle class workers to get ahead while working. They should be seen as a bridge that will hopefully become less and less necessary as our economic markets are repaired and the balance is restored between management, capital, and workers. Until then, workers have been taking every economic change on the chin for the last 40 years and they deserve a break. The top priorities need to be:

  1. Make childcare more affordable through direct investment in childcare centers and providing subsidies to those who do not have access to subsidized child care.

  2. Universal 3K and 4K education.

  3. Reinstate the expanded, monthly Child Tax Credit.

  4. Expand Medicaid and Medicare to allow seniors to truly decide whether they want to age in their current home or move into high quality senior communities rather than being forced into overwhelmed and understaffed nursing homes.

Enacting these policies alone will allow working age Americans to have peace of mind while they are working at their jobs that their children and aging parents are being well taken care of. Further, working Americans will also know that there is little danger of huge price increases or a sudden loss of these services.

In addition to making it easier to take care of families, Congress should work to make it easier to get a home. This includes providing first-time homebuyer grants which do not need to be repaid by the homeowner at any time. Further, Congress should provide additional funding to municipalities that wish to increase housing supply by pre-approving areas of land for either new construction, or redevelopment, of single-family homes. This will allow for homebuilders to avoid much of the soft-costs associated with constructing new homes such as obtaining zoning approvals and other entitlements.

B. Improve Working Conditions and Pay for Current Workers

Congress should pass the PRO Act or similar laws that will level the playing field between workers and corporations.  These laws would prohibit anti-union activities by companies including (i) mandatory attendance at anti-union meetings held by employers and (ii) retaliation for attempting to organize a union at a company. If employees want to unionize they should be entitled to unionize and the employer must be obligated to negotiate in good faith with a union once it is voted on by the employees.  Further, we need a federal law that allows for fair share or similar agreements in which non-union employees who benefit from union representation are obligated to pay for the costs of such representation regardless of union membership.  

We also need Congress to limit the use of non-competition and binding arbitration agreements which have been used to limit the mobility of workers. These agreements prevent workers from moving on to better opportunities and can cause workers’ wages to stagnate due to this lack of competition for talent by employers.  Further, companies and their executives should be held personally liable for intentional or reckless violations of the National Labor Relations Act. The National Labor Relations Act is the law of the land and violations of it cannot become a “cost of doing business” such that it becomes meaningless because companies simply pay a fine and move on.

Finally, Congress should implement a tax on companies that have more than twenty percent (20%) of their workforce on government rental or food assistance. This would include those companies that use a franchise or dealership model. If companies’ business model relies on paying wages to workers that are so low those workers require taxpayer assistance to live. Those companies are being subsidized by us.  Therefore, those same companies that are being subsidized with that taxpayer assistance should pay for that subsidy.

C. Future Workers

While ensuring that our current workforce is getting its fair share of the benefits it is creating, we need to take steps to ensure the next generation of Americans have the tools to compete in the increasingly global marketplace.  These tools need to be made available without those future workers as cost efficiently as possible which can be accomplished by:

  1. Examining what steps can be made to remove barriers to entry such as unnecessary credentialing by businesses.

  2. Reemphasizing the value of technical and community colleges along with apprenticeships and ensuring that these programs remain as close to free as possible. This will hopefully also help drive down the cost of college because students will have a viable alternative path to reaching the middle class without the need to take on debt to get a 4 year college degree.

D. Infrastructure

While the infrastructure bill was finally signed into law in 2021, we still need to make significant investments in infrastructure to meet the standard of living that Americans expect and deserve. This includes ensuring that affordable and reliable high speed internet can be obtained anywhere in the U.S. Our regulations need to be rewritten to ensure that our shipping, transportation, and port infrastructure can quickly and efficiently move imports and exports throughout the country. Importantly, Congress should work to prohibit laws that protect legacy industries especially in terms of infrastructure. One high profile example of this are those state laws that prohibit municipalities from forming their own internet service providers. These laws should be prohibited because internet service has become so integral to the economy that it is truly a utility and something that municipalities should be able to provide to their constituents.

E. Rural Communities

Rural Communities are often ignored by policymakers but we need to have a strategy in place to allow rural communities to remain vibrant as much of our food production and manufacturing takes place in these areas. To do this, Congress should increase the block grant funding available to rural communities to utilize for business development programs, additional affordable housing, and infrastructure improvement. These block grant funds should come with as few strings as possible to allow for maximum flexibility in determining how best to use the funds by the rural communities themselves. Nobody has a better understanding of what the rural community needs than the community itself.

4. Make the Government Work for Us

To make the programs and policies outlined above work, we need to ensure that everybody is being held to an equal standard. that fraud is being fought and that everybody is paying their fair share.  This requires a government that has the staffing and the necessary tools to do the job asked of it. For example, we currently have up to $1 trillion dollars in income taxes owed to the federal government but not collected each year.  Most of these uncollected tax dollars are owed by the wealthiest among us who are illegally evading taxes. These taxes need to be collected as this is truly their fair share of taxes. To do this, we need to increase the budget of the IRS to ensure it has the manpower and resources to audit high net worth tax evaders that hide behind high-priced lawyers and accountants to avoid paying the taxes they owe. 

Related to the rooting out of fraud and corruption, congress needs to ensure that there are penalties that will deter companies and people from engaging in that fraud or corruption in the first place. Congress should also increase the fines and other penalties for the largest companies that are found to have violated the law. Currently, fines are often seen as a cost of doing business by the largest companies and thus, compliance becomes less of a concern. If companies are planning to simply pay a fine and continue breaking the law, then these fines are not sufficient and need to be raised. White collar crime is still crime and it needs to be treated as such. This increase in fines together with a greater potential for personal liability for executives for the most blatant violations of law should make it clear the law applies to everybody equally. 

Finally, a small financial transactions tax for high frequency trading individuals and firms should be imposed.  Exemptions would be made for those people or entities making fewer trades as well as trades made in connection with a pension fund, 401K, IRA or similar retirement based fund. This tax will curtail a practice that hurts regular investors by giving the high frequency trade the ability to make a purchase immediately before the regular investor and driving up the price. Thus, depriving the regular investor of the benefit of any increase in value of the stock.

CONCLUSION

We have a market economy with a number of broken markets. These broken markets have created an economy with higher prices, fewer jobs with family-supporting wages, fewer jobs overall, a distorted media, and a tenuous food supply chain. Fixing these markets through the policies outlined above will go a long way to actually solving the problems facing everyday Americans and will not just transfer some wealth from the very wealthy to the working poor. They will allow Americans to work and get ahead from that work. Better yet, they will put America back on a path to being on the cutting edge of new technologies, products, and living standards.