Taxing Progressively

Finding the Good in the ‘Good Old Days’

Sometimes we can move forward by turning the political clock
back — if we know exactly where to stop.

By Sam Pizzigati

Last week, in a speech at the U.S. Chamber of Commerce, President Obama pledged that the federal budget he unveils this week will take “domestic discretionary spending down to the lowest share of our economy since Eisenhower was President.”

No one in the Chamber audience cheered, mainly because Chamber types don’t trust Obama when he talks budget cuts. But the rest of us shouldn’t be cheering either. If we’re going to be heading back to the Eisenhower era, we have much better options for what we ought to be trying to emulate.

We could, for instance, make an effort to replicate those economic arrangements of the 1950s most responsible for that era’s record prosperity — and equality.

In the 1950s, the real wages of average Americans rose steadily and sharply. Workers averaged $11.17 an hour in 1950, adjusted for inflation, and $14.20 an hour a decade later in 1960.

These wage increases didn’t just happen. Workers organized to make them happen. In 1954, 35 percent of America’s private-sector workers carried union cards, and the contracts their unions bargained set the pace for wages throughout the economy, in union and nonunion workplaces alike.

Hourly wage increasesOne example: The Eisenhower era’s biggest national retailer — Sears Roebuck — operated as a nonunion employer. But Sears, to compete in a heavily unionized labor market, found itself offering near union-level wages and benefits.

The contrast with today couldn’t be more striking. Last month, the U.S. Labor Department reported that only 6.9 percent of America’s private-sector workers belong to unions, the lowest union share in over a century. Across huge stretches of America, unions have virtually no private sector presence at all.

That reality gives giant corporations free rein to do as much squeezing as their executives can stomach. In the 1950s, the nonunion Sears had to pay near union scale to survive and thrive. Today’s biggest retailer, the fiercely anti-union Wal-Mart, operates under no such pressure. The result? "Always low wages."

The Eisenhower era’s widespread union presence didn’t just keep average wages rising. That same union presence helped keep compensation at the corporate top relatively reasonable. In 1960, America’s chief executives made only 41 times average worker pay, about one-seventh the current CEO-worker gap.

The mid-20th century’s most celebrated auto executive, George Romney, averaged only $275,000 a year. Powerful execs like Romney — the father of current GOP Presidential hopeful Mitt Romney — didn’t squeeze their workers. They bargained with them.

Today, of course, the reverse. CEOs can routinely rake in ten times and more, after inflation, what George Romney took home — and they do whatever they must to score those windfalls. They downsize and outsource, ax pensions, gouge consumers, stiff Uncle Sam on taxes due, and, if all else fails, cook the books.

Executives a half-century ago had little incentive to engage in all this conniving. Eisenhower-era tax rates saw to that. In the 1950s, income over $400,000 faced a 91 percent federal tax rate. With stiff progressive tax rates in effect, few execs went chasing — by any means necessary — after windfalls. Why bother?

High taxes on high incomes, collective bargaining for higher average incomes. That two-step would engineer, in the mid 20th century, a middle class golden age.

Slashing the federal budget — either by a little, as the White House will be proposing this week, or by a lot, as Republicans in Congress are demanding — won’t restore that golden age. To make America start working again for working people, we may need to think more like Ike.

signupEisenhower, as many Americans today know, warned against the “military-industrial complex” in his 1961 farewell address. But a few months earlier, at an auto industry function in Detroit, Ike had an ever broader warning to lay out.

In many countries, the President related, “a few families are fabulously wealthy, contribute far less than they should in taxes, and are indifferent to the poverty of the great masses of the people.” In these countries, Ike continued, “broad purchasing power” does not exist.

“A country in this situation,” he warned, “is fraught with continual instability.”

Ike meant his warning as a Cold War cautionary tale. He never dreamed a fabulously wealthy, tax-avoiding, indifferent elite would ever again dominate his United States. That dream, for Ike, would have been a nightmare.  

That nightmare we don’t dream. We live.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up to receive Too Much in your email inbox.

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