Lost Opportunity to Reign in the Rich

FLASHBACK to December 1994, Newt Gingrich is poised to be Speaker of the House. Business Week, not a liberal rag, has an article entitled, "Reining in the Rich: The costliest welfare load isn't for the poor, its for the well-to-do."

Americans were ready to do the right thing to set our economy on a steady course, representing Main Street interests, as opposed to Wall Street interests. The following poll indicated that 63% of the public wanted to direct government savings to either deficit reduction or government programs. Only 29% wanted tax cuts.

There was debate within the Clinton Administration between the the fearful pro-Wall Street wing, "nervous" about sounding "antibusiness," and the bold pro-Main Street wing. The later, including Labor Secretary Robert Reich, told Clinton, "Gingrich is on the verge of capturing the support of working-class people." He was right. He counseled Clinton, "We should sharply contrast Republicans, who want to cut taxes on capital gains for the wealthy, with Democrats", who want to help working people.'

Rather than be assertive, the pro-Wall Street faction of Hillary Clinton, George Stephanopoulos and Leon Panetta, "counseled laying back and letting volatile conservatives like Gingrich and Senator Jesse Helms... discredit themselves by lurching into extremist policies. History suggests that, in the very long run, their policies could be said to "succeed," but only after major irreversible damage had been done. Specifically, huge amounts of wealth and power were consolidated among right wing proponents before Gingrich finally self-destructed.

The pro-Main Street wing argued that modest proactive reforms could save $ billions. Business Week reported that the well-off were willing to forgo some social security benefits.

Similar modest means testing provisions for Medicare would have saved $1.1 billion per year (netting $13 billion between then and now in 1994 dollars).

While some agricultural subsidies help stabilize small farms, and protect the environment, others are pork. A modest trimming of the pork would have saved $4.3 billion per year (netting $52 billion between then and now in 1994 dollars).

Reduction of oil and gas mining subsidies could have saved $2.2 billions per year (netting $26 billion between then and now in 1994 dollars).

Housing subsidies come in many forms, including breaks for the financial sector. Ironically, today, we're hearing blame directed at people who bought houses they can't afford. Back in 1994, Business Week was reporting:

Fewer than 20% of the poor receive federal housing aid. but a large majority of those who earn more than $100,000 a year (about $179,000 in 2007 dollars) do so, through tax deductions for payment of mortgage interest...

More than 1/3 of the tax subsidies go to the 5% of tax payers who earn more than $100,000 ($179,000 in 2007 dollars). Limiting the deduction to mortgages of $300,000 in 1994 dollars ($420,000 in 2007 dollars) would have saved $4 billion per year, affecting only 1% of tax payers. ($48 billion accumulated by 2007).

Common to all of these policy options were modest proposals that would have reduced government subsidies that benefit the well-to-do Americans. Had those savings been realized, about $140 billion in 1994 dollars could have been used for national debt reduction, infrastructure maintenance, improved education, or preventive health care proven to save costs in the long run. Instead, much of that money went to people with excess wealth, contributing to the bubble economy that is now deflating and hurting Main Street.

Sources:

Business Week, "Reining in the Rich: The costliest welfare load isn't for the poor, its for the well-to-do." December 19, 1994.