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Wall Street-Backed Organization Blasts Rising American Populism and Elizabeth Warren

In a noxious Wall Street Journal editorial, Third Way boosters try to strangle the new wave of populism in its crib.

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An almost palpable air of desperation clings to the anti-“populist,” anti-Elizabeth Warren editorial by Jonathan Cowan and Jim Kessler of the corporate-funded Third Way organization. If they’re worried, they’re right to worry. The world is changing.

Economic Populism Is a Dead-End for Democrats” appeared in The Wall Street Journal, appropriately enough, and argues that the election of staunch progressives like Bill De Blasio as mayor in New York City and Warren as Massachusetts senator have no broader political significance.

For a piece that purports to address something called “economic populism,” Cowan and Kessler make some striking omissions. Nothing is said about today’s record levels of unemployment, including long-term unemployment. Or about the retirement crisis confronting most Americans. Or the wage stagnation that is crushing the middle class.

How is it possible to address “economic populism” without mentioning the three economic trends that have had the greatest impact on the general public?

Tax Dodge

Cowan and Kessler open their policy prescriptions with a feint against higher taxes for the wealthy and corporations – their group’s primary benefactors – by dismissing the income-generating potential of these taxes. Here’s the truth: Real corporate taxes rates are at or near their lowest levels in 60 years, despite record profits. The top marginal tax rate for individuals is less than half of what it was during the Eisenhower years.

And just one loophole – the offshore tax haven – is allowing corporations to evade paying taxes on nearly $2 trillion in income. It’s clear that significant revenue can be raised with these tax increases.

These tax hikes are also smart politics. A recent poll by Americans for Tax Fairness showed that 70 percent of Americans want to offset the sequester spending cuts with tax increases for the wealthy and corporations.

Perverse Incentives

Instead, the authors push Social Security and Medicare cuts, which were supported by only 12 percent of those polled. They write of Medicare: “Sen. Warren and her acolytes are irresponsibly pushing off budget decisions that will guarantee huge benefit cuts and further tax hikes…”

But to treat Medicare as a “budget decision” is to misunderstand the problem. The  core problem isn’t the Medicare budget. The problem is the cost of health care in the United States. Third Way-style solutions would not address that problem. They would merely shift the cost burden from the government to individual seniors who are entirely unequipped to handle it.

Eventually we’ll need to change a system of perverse provider incentives that distorts medical treatment patterns, billing practices and rates. That means addressing the destructive impact of investment income in the health care provider economy – something Wall Street-friendly groups would rather not discuss.

Don’t Fear the Boomers

Cowen and Kessler also indulge in typically misleading Social Security fear-mongering, writing of “a growing cascade of Baby Boomers (who) will be retiring in the coming years.” That “cascade” is actually shrinking, not growing, as death overtakes that generation. And its size has been well-known by actuaries since  the last Boomer was born in 1964.

What changed? First, the rich began capturing a far greater percentage of the national income than had been the case in modern history – beginning with the Reagan years, continuing through the Clinton era, and continuing today. As a result, a much greater percentage of our national income lies above the payroll tax cap that funds Social Security. (No less an “economic populist” than Ronald Reagan’s chief actuary has helped explain why the Third Way position is wrong.)

Next, the predations of Wall Street banking firms – many of whom provide funding for Third Way and sit on its board – crashed the economy in 2008, throwing millions of people out of work and leaving millions more underemployed. Jobless people don’t contribute to Social Security, and underemployed people contribute less than they normally would.