Shared Economic Growth:
Working to Give Our Children Hope
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Our Children’s “Inheritance"
The graphics below depict a series of alarming economic trends in the U.S., including widespread income stagnation and an unsustainable fiscal outlook. Politicians often attribute these trends to globalization/trade or education and offer limited partisan sound-bite solutions. But we cannot fix our economy and create good jobs by simply isolating the U.S. from global trade or improving our schools as they suggest. The true source of these alarming trends lies in the interplay of our tax system and a global economy where investment and, in turn, jobs are increasingly mobile. Although our tax system is playing a major role in the development of these trends, our elected representatives fail to acknowledge that problem, let alone correct it. As it is now, our children will inherit massive debt and tax obligations, and they won’t have the means to pay them.
1.Income Stagnation
There was a time in America when the real income of the average working person grew at a very satisfying rate. We all had good reason to believe that we would be better off than our parents, and that our children would be better off than us. About thirty years ago, that time ended.
As the chart above illustrates, average real income of the great majority of Americans has been flat over the past 30 years. The kinds of jobs that used to provide a good living for people who lacked a college education have been going away, moving overseas or being suppressed by cost competition from abroad. Quality manufacturing jobs have been replaced with relatively low-paying jobs as restaurant workers, store clerks, and the like. Families that used to do fine with a single income now need two, and those families spend more money on child-care, commuting expenses, and other costs of maintaining a second earner – all of which leave them with less disposable income than they used to have in the single earner days. Families that seek to raise their children to rise above this downward slide find that college costs continue to grow by leaps and bounds. They simply cannot afford to provide their children with a college education or even save for retirement.
Parents with college and post-graduate education often send their children to college and graduate school to give them access to the higher-paying jobs in the global knowledge-based economy. But it is a struggle for many of them as well. Parents are often confronted with the difficult choice of either educating their children or saving for retirement because they simply cannot do both. Even among college graduates, more and more find themselves tied to a form of “productivity growth” commonly known as working more hours (for about the same money), sacrificing quality time with family, and being constantly bound to the office by an electronic leash.
Perhaps one of the most neglected aspects of all of this is the impact it is having on our children. Many parents, in their effort to make ends meet, are more absent from their children’s lives than ever before. Some families manage the balancing act, but whether we want to acknowledge it or not, for many children the lack of attention and supervision places them at greater risk for a host of problems. One only has to watch the news to see the serious difficulties our children are experiencing.
2. Excessive Foreign Debt
America’s budget deficit and the level of its debt to foreign lenders have been growing at unsustainable rates. As we pay ever more for imported oil, imported manufactured goods, and even imported food, we borrow more and more from the governments of the countries that produce and sell us these things. Remember reading about the days of company towns and the worker who sang, “I sold my soul to the company store”? Today it is increasingly America, as a nation, that has sold its soul to the foreign company store. The factories have largely gone already, and now we are selling our ports and our highways to foreign buyers because our federal and state governments are desperate for money. What’s left is a “service economy,” where our people serve each other restaurant meals, provide child care services for each other, mow each other’s lawns, and – until clients discover that they can get equivalent services more cheaply from the rapidly growing pool of educated workers in other countries -- provide consulting services to foreigners, all in order to pay for a portion of the goods we import.
In recent years, Americans have given up their privacy and various legal protections in the name of Homeland Security. But how secure is our homeland if we cannot survive without the goodwill of foreign lenders? What would happen if foreign nations withdrew their U.S. loans of some $9.2 trillion ($9,188,300,000,000)?
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Foreigners and foreign nations, particularly in the Middle East and Asia, are hoarding U.S. Dollars and investing in both U.S. debt and equities. Although their objective may simply be to make money, such investments give them the power to wreak havoc on the U.S. economy should that be in their strategic interest.
3. Social Safety Nets That Are Not Safe
As our nation goes about borrowing enormous amounts from foreigners and the great majority of Americans experience difficulty saving for a secure retirement, we are becoming more reliant on social safety nets that are not really safe. In fact, without drastic tax increases and benefit cuts or economic growth at a rate that has not been seen since World War II, the federal government predicts that the cost of current retirement and health care benefits for our aging population will exceed tax revenues as early as 2017.
Tweaks to the Social Security system will not make the safety net reliable.There is no real money in the Social Security trust fund. The government has "borrowed" it all and spent it on other things. When the government refers to the "deficit", the number they are referring to is the cash shortfall after having spent every penny in the theoretical "trust fund". To pay future Social Security and Medicare benefits, future workers will need to provide fresh tax revenues. Simply put, the government has not saved for your retirement, it has merely made promises backed only by a mortgage on the future of our children who may not be able to pay.
According to the Congressional Research Service, in 1950, 16 workers supported each Social Security recipient. Now there are about 3 workers per recipient, and by 2030 the dependency ratio will fall to about 2 workers per recipient. There are several reasons for the reduced numbers of workers per retiree. The large baby boom generation was followed by much smaller generations, life expectancies are increasing and more workers are retiring earlier. The reduced number of workers supporting each Social Security recipient cannot be changed absent dramatic increases in immigration, birth rates or death rates. Because the number of retirees is rising relative to the number of workers, Social Security and Medicare will collapse unless we significantly increase the growth rate of our economy, slash benefits to the bone, or tax our children unmercifully.
4. The U.S. No Longer the Leading Innovator
Although the U.S. was ranked as the most competitive economy according to the World Economic Forum 2007 Global Competitiveness Report, a variety of indicators show that our nation’s overall competitiveness is indisputably fading fast. In addition to very poor scores on macroeconomic indicators (government debt and savings rates), several other countries surpass the U.S. in categories associated with efficiency and the capacity to innovate, including higher education (particularly in the area of math and science), technological readiness, company R&D spending, quality of scientific research institutions and availability of scientists and engineers. The percentage of scientific papers orginating in the U.S. is still high, but we are being rapidly overtaken by other countries. The balance of trade on ordinary goods shifted heavily against the U.S. long ago, but it wasn't until 2002 that the U.S. started importing more high technology goods that we exported. That imbalance has gotten worse each year since. The dominance of the U.S. in advanced education has faded, and our performance at elementary and secondary school math and science education is worse, near the bottom of advanced nations. U.S. technical employment is suffering from foreign competition. We are no longer leading. And increasing U.S. education without fixing the economic incentives will not help, because there are no jobs for the would-be graduates.
What is driving these trends and how are we contributing to them? The ability to compete in a global economy is attributable to a variety of factors, including cost of labor, skill level of workforce, technology, infrastructure and taxes. In the past two decades, economic reforms throughout the world (primarily in the East) and revolutionary changes in information sharing and communication technologies, have greatly expanded the global supply of labor and facilitated access to skilled workers abroad. Emerging countries, particularly those in the Asia-Pacific region, with growing populations continue to develop educated workforces and adopt technology so they can meet the rising demand for skilled workers at a cost that can't be beat by developed countries like the U.S., Japan and Europe because of their older, shrinking workforces. As one Accenture executive noted, “The U.S., Japan and Europe are losing their monopoly on research and development and the creation of new products and services.” Indeed, corporations wishing to set up their R&D centers and high tech operations are no longer forced to stay in America to access our talent - they can buy equivalent talent abroad and often for less. Just as an example, Pfizer, the world’s largest pharmaceutical company, recently announced plans to expand its R&D efforts in China, India and South Korea. Pfizer opened a research centre in Shanghai in 2005 that now employs 200 and plans a $300 million investment in R&D in South Korea over the next five years.
As other nations around the world become more competitive with respect to the cost of labor, skill level of the workforce, technology and infrastructure, the role of taxes in the competitive equation is greatly magnified. For example, in 2006, Craig Barrett, chair of Intel Corporation's board of directors, said, "Many countries compete intensely to attract Intel’s facilities, although this has also changed in recent years. More nations very intent on attracting high-tech state-of-the-art factories, such as Intel's, now also have the requisite infrastructure and well-trained workforce they lacked in years past. Many countries offer very significant incentive packages and have highly favorable tax systems." Recognizing that investment and jobs have become increasingly mobile, many countries have significantly reduced corporate tax rates and created incentives to attract high-margin knowledge based economic activities so that they are less susceptible to competitive pressure from low-wage countries.
What has the U.S. done to address the increased mobility of investment and jobs? Nothing! The U.S. tax system, which has remained virtually unchanged for decades, discourages the investment - including the development and ownership of technology - required to generate broad-based economic growth, good jobs and retirement security for all working Americans. As the previous page explains, we can address increased mobility of investment and jobs and reverse the trends described above. There are substantive common-sense solutions, but because some part of the solution has been traditionally Republican or some other part has been traditionally Democratic, they are never considered. We can no longer afford to do nothing but bicker…if not for ourselves, for our children. |
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LINKS RELATED TO THIS TOPIC:
CRFB on the fiscal crisis: click here
Professor Warren on Making Ends Meet: click here
2011 Congressional Budget Office report: click here
Corporate Taxes and Wages: click here
U.S. tax inhibits foreign subsidiaries from paying cash to the U.S.: click here
New York Times: click here
Inequality and Taxes Slideshow: click here
AFL-CIO on America's manufacturing crisis: click here
Hobbling exports and destroying jobs: click here
Douglas Hopkins on Social Security: click here
Testimony of William Sprigg, Ph.D.: click here
Testimony of Mark Zandi, Ph.D., of Moody's Economy.com: click here
CBS News - latest concentration of incomes figures: click here
Professor G. William Domhoff on wealth and power: click here
Inequality in the new knowledge economy:click here
Gene Sperling - Rising tide economics: click here
Public Radio on debt and the dollar: click here
Economic Policy Institute debt and the dollar: click here
Center for American Progress on trade deficit: click here
Professor Graetz of Yale regarding U.S. tax policy in a changed world: click here
Paul Craig Roberts (Assistant Secretary of the Treasury in the Reagan administration): click here
Major foreign holders of U.S. treasury securities: click here
U.S. National Debt clock: click here
Grandfather Economic Report: click here
The federal Government Accountability Office on our unsustainable fiscal policy:click here
G.A.O - Tough choices ahead: click here
G.A.O. - Retirement income security: click here
Center for Retirement Research, Boston College: click here
Business Week Editorial: click here
Change to Win (trade union coalition) view:click here
European commission view: click here
National Academy of Sciences The gathering Storm - see pages 19 and 25 of the pdf in particular - large file - click here
PPI: click here
First U.S. trade deficit in technology in 2002, persistent decline since then: click here
"We're number 2": Click here and here
Where are the engineers?: click here
Aging engineers: click here
U.S. education: click here
Advanced degrees by country: click here and here and here
and what if they stopped coming here?: click here
New R&D centers: click here
Business competitiveness ranking: click here
One company's changes: click here and here
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