Daily Digest - January 26: Taxing for the Common Good

Jan 26, 2015Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Obama Declares Recovery of American Economy (UP with Steve Kornacki)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Obama Declares Recovery of American Economy (UP with Steve Kornacki)

Roosevelt Institute Chief Economist Joseph Stiglitz discusses the tax proposals in the State of the Union address, and explains where they could have done more to promote prosperity.

McDonalds Workers File Civil Rights Lawsuit (NOW with Alex Wagner)

Roosevelt Institute Fellow Dorian Warren, Friday's guest host, ties this new racial discrimination case to broader patterns of poor labor practices at McDonald's.

Why Obama Took the Lead on High-Speed Internet Access Policy (Medium)

Roosevelt Institute Fellow Susan Crawford says the president's take on Internet access has shifted to better align with his discussion of middle-class economics.

Report: Fast Food Industry Could Survive $15 Minimum Wage (AJAM)

A new report from economists at the University of Massachusetts at Amherst explains how fast food companies could maintain their profit margin while raising wages, writes Ned Resnikoff.

Why Wealthy Americans’ Delusions About the Poor Are So Dangerous (Salon)

David Sirota says that reliance on regressive tax policies, such as sales taxes instead of state income taxes, are harming state economies by giving poor families higher effective tax rates than rich ones.

Middle Class Shrinks Further as More Fall Out Instead of Climbing Up (NYT)

Dionne Searcey and Robert Gebeloff examine the data on the shrinking middle class, noting that only in recent decades has the middle class shrunk because people were moving down the ladder.

New on Next New Deal

Roosevelt Reacts: What Else Did We Need from the 2015 State of the Union?

Roosevelt Institute | Campus Network students and alumni respond to the State of the Union address, with a particular focus on what the president left out or could have taken further.

Share This

The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy

Jan 20, 2015Mike Konczal

President Obama is going big on capital taxation in the State of the Union tonight, including a proposal to raise dividend taxes on the rich to 28 percent. The President is probably not going to frame this as a move away from the George W. Bush economy, but Bush’s radical cuts to capital taxes are part of his legacy that we are still living with. And it’s a part that the latest evidence tells us did a lot to help the rich without helping the overall economy at all.

In the response to Obama’s proposal, you are going to hear a lot about how lower dividend rates increase investment and help the real economy. Indeed, lowering capital tax rates has been a consistent goal of conservatives. As a result, one of the biggest capital taxation changes in history happened in 2003, when George W. Bush reduced the dividend tax rate from 38.6 percent to 15 percent as part of his rapid and expansive tax cut agenda.

There’s been a lot of research about the effect of this massive dividend tax cut on payouts to shareholders (kicked off by an important 2005 Chetty-Saez paper), but very little on its effect on the real economy. Did slashing the dividend tax rate boost corporate investments, perhaps because it made funding projects easier? We don’t know, and it’s not because economists aren’t interested; it’s because it’s very difficult to construct a control group with which to compare the results. Investments increased after 2003, but they likely would have to some degree independent of the dividend tax cut, as we were coming out of a recession. So did the tax cut make a difference?

This is where UC Berkeley economist Danny Yagan’s fantastic new paper, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut,” (pdf, slides) comes in. He uses a large amount of IRS data on corporate tax returns to compare S-corporations with C-corporations. Without getting deep into tax law, C-corporations are publicly-traded firms, while S-corporations are closely held ones without institutional investors. But they are largely comparable in the range Yagan looks at (between $1 million and $1 billion dollars in size), as they are competing in the same industries and locations.

Crucially, though, S-corporations don’t pay a dividend tax and thus didn’t benefit from the big 2003 dividend tax cut, while C-corporations do pay them and did benefit. So that allows Yagan to set up S-corporations as a control group and see what the effect of the massive dividend tax cut on C-corporations has been. Here’s what he finds:

The blue line is the C-corporations, which should diverge from the red-line if the dividend tax cut caused a real change. But there’s no statistical difference between the two paths at all. (Note how their paths are the same before the cut, so it’s a real trend in the business cycle.) There’s no difference in either investment or adjusted net investment. There’s also no difference when it comes to employee compensation. The firms that got a massive capital tax cut did not make any different choices about things that boost the real economy. This is true across a crazy-robust number of controls, measures, and coding of outliers.

The one thing that does increase for C-corporations, of course, is the disgorgement of cash to shareholders. Cutting dividend taxes leads to an increase in dividends and share buybacks. This shows that these corporations are in fact making decisions in response to the tax cut; they just happen to be decisions that benefit, well, probably not you. If right now you are worried that too much cash is leaving firms to benefit a handful of investors while the real economy stagnates, suddenly Clinton-era levels of dividend taxation don’t look so bad.

This is interesting for people interested more specifically in corporate finance theory. Because this is evidence against the theory that firms use the stock market to raise funding, and toward a “pecking order” theory that internal funds and riskless debt are far above equity in a hierarchy of corporate funding choices. In models like the latter, taxation of dividends does very little to impact the cost of capital for firms, because equity isn’t the binding constraint on marginal investment options.

President Obama will likely focus his pitch for the dividend tax increase on the future, when, in his argument, globalization and technology will cause compensation to stagnate while investor payouts skyrocket and the economy becomes more focused on the top 1 percent. But it’s worth noting that while capital taxes are a solution to that problem, the radical slashing conservatives have brought to them are also partly responsible for our current malaise.

Follow or contact the Rortybomb blog:
 
  

 

President Obama is going big on capital taxation in the State of the Union tonight, including a proposal to raise dividend taxes on the rich to 28 percent. The President is probably not going to frame this as a move away from the George W. Bush economy, but Bush’s radical cuts to capital taxes are part of his legacy that we are still living with. And it’s a part that the latest evidence tells us did a lot to help the rich without helping the overall economy at all.

In the response to Obama’s proposal, you are going to hear a lot about how lower dividend rates increase investment and help the real economy. Indeed, lowering capital tax rates has been a consistent goal of conservatives. As a result, one of the biggest capital taxation changes in history happened in 2003, when George W. Bush reduced the dividend tax rate from 38.6 percent to 15 percent as part of his rapid and expansive tax cut agenda.

There’s been a lot of research about the effect of this massive dividend tax cut on payouts to shareholders (kicked off by an important 2005 Chetty-Saez paper), but very little on its effect on the real economy. Did slashing the dividend tax rate boost corporate investments, perhaps because it made funding projects easier? We don’t know, and it’s not because economists aren’t interested; it’s because it’s very difficult to construct a control group with which to compare the results. Investments increased after 2003, but they likely would have to some degree independent of the dividend tax cut, as we were coming out of a recession. So did the tax cut make a difference?

This is where UC Berkeley economist Danny Yagan’s fantastic new paper, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut,” (pdf, slides) comes in. He uses a large amount of IRS data on corporate tax returns to compare S-corporations with C-corporations. Without getting deep into tax law, C-corporations are publicly-traded firms, while S-corporations are closely held ones without institutional investors. But they are largely comparable in the range Yagan looks at (between $1 million and $1 billion dollars in size), as they are competing in the same industries and locations.

Crucially, though, S-corporations don’t pay a dividend tax and thus didn’t benefit from the big 2003 dividend tax cut, while C-corporations do pay them and did benefit. So that allows Yagan to set up S-corporations as a control group and see what the effect of the massive dividend tax cut on C-corporations has been. Here’s what he finds:

The blue line is the C-corporations, which should diverge from the red-line if the dividend tax cut caused a real change. But there’s no statistical difference between the two paths at all. (Note how their paths are the same before the cut, so it’s a real trend in the business cycle.) There’s no difference in either investment or adjusted net investment. There’s also no difference when it comes to employee compensation. The firms that got a massive capital tax cut did not make any different choices about things that boost the real economy. This is true across a crazy-robust number of controls, measures, and coding of outliers.

The one thing that does increase for C-corporations, of course, is the disgorgement of cash to shareholders. Cutting dividend taxes leads to an increase in dividends and share buybacks. This shows that these corporations are in fact making decisions in response to the tax cut; they just happen to be decisions that benefit, well, probably not you. If right now you are worried that too much cash is leaving firms to benefit a handful of investors while the real economy stagnates, suddenly Clinton-era levels of dividend taxation don’t look so bad.

This is interesting for people interested more specifically in corporate finance theory. Because this is evidence against the theory that firms use the stock market to raise funding, and toward a “pecking order” theory that internal funds and riskless debt are far above equity in a hierarchy of corporate funding choices. In models like the latter, taxation of dividends does very little to impact the cost of capital for firms, because equity isn’t the binding constraint on marginal investment options.

President Obama will likely focus his pitch for the dividend tax increase on the future, when, in his argument, globalization and technology will cause compensation to stagnate while investor payouts skyrocket and the economy becomes more focused on the top 1 percent. But it’s worth noting that while capital taxes are a solution to that problem, the radical slashing conservatives have brought to them are also partly responsible for our current malaise.

Follow or contact the Rortybomb blog:
 
  

 

Share This

The Van Hollen Plan Takes on Soaring CEO Pay: A Debate We Need to Have

Jan 15, 2015Susan Holmberg

Taxpayers are subsidizing ever-larger executive pay packages while their own wages stagnate. For the middle class to prosper, that needs to change.

Taxpayers are subsidizing ever-larger executive pay packages while their own wages stagnate. For the middle class to prosper, that needs to change.

The intrepid economic proposals in Rep. Chris Van Hollen’s action plan “to grow the paychecks of all, not just the wealth of a few” may not win over a Republican Congress, but they will reinforce the progressive economic messaging championed by Senator Elizabeth Warren and conceivably embolden more Democrats to finally take command of our economic debate in advance of the 2016 presidential election. Though Van Hollen’s tax credits for working families and dilution of tax breaks for the rich have grabbed the most headlines, another controversial but important piece of his plan is the CEO-Employee Paycheck Fairness Act, which aims to address one of the key contributing factors to soaring inequality and economic volatility in the U.S.

The CEO-Employee Paycheck Fairness Act stops corporations from claiming tax deductions for “performance pay” for executives – e.g. stock options and stock grants – “unless their workers are getting paycheck increases that reflect increases in worker productivity and the cost of living.”

The logic of this law is simple. Since 1979, productivity growth in the U.S. has risen eight times faster than the typical worker’s pay. At the same time, corporations have enjoyed a tax deduction for CEO pay levels (and compensation for other top executives) that are now 296 times median worker pay. Van Hollen’s proposal says that corporations can no longer continue to take these unlimited tax deductions for CEO and executive pay unless they are also giving their employees a raise that reflects worker productivity as well as cost of living increases. Specifically, to enjoy the tax benefit, corporations must raise the average pay of their workers earning below $115,000 by the U.S.’s average annual net productivity growth since 2000, which is about 2 percent, plus the annual inflation rate.

Most of us think of skyrocketing CEO pay as an ethical problem, not an economic one. But in fact, the problems that come with skyrocketing CEO pay – in 2013, the average CEO at S&P 500 Index companies was worth $11.7 million – are well beyond the issue of basic fairness. Exorbitant CEO pay comes with enormous economic costs to all of us.

Many of the problems stem from the tax deduction Van Hollen is referring to, the notorious “performance pay” loophole created by Section 162(m) of the U.S. tax code. Section 162(m) prohibits corporate tax deductions for executive pay over $1 million unless that pay is rewarded for meeting performance goals. This was supposed to curb skyrocketing executive pay, but after it became law in the 1990s, the predictable happened: companies started dispensing more compensation that qualified as performance pay, particularly stock options. Median executive compensation levels for S&P 500 Industrial companies almost tripled from less than $2 million in 1992 to more than $5 million six years later, mainly driven by a dramatic growth in stock options, which doubled in frequency. For more background on this issue, I recommend my primer, “Understanding the CEO Pay Debate.”

Because it makes executives very wealthy, very quickly, performance pay is not only a major driver of the U.S. inequality problem, which in itself wreaks havoc on our economy, but also encourages shortsighted, excessively high-risk, and occasionally fraudulent decisions in order to boost stock prices. What kind of effect does this behavior have on the economy at large? Many economists argue that executive compensation policies in the financial industry led to the global economic crisis. Performance pay also diminishes long-term business investments. According to economist William Lazonick, in order to issue stock options to top executives while avoiding the dilution of their stock, corporations often divert funds to stock buybacks rather than spending on research and development, capital investment, increased wages, and new hiring. And the rest of us are footing the bill: the Economic Policy Institute calculated that taxpayers have subsidized $30 billion to corporations through the performance pay loophole between 2007 and 2010. Let me rephrase that: in a three-year period, taxpayers have subsidized $30 billion for executive pay, all while seeing their own wages stagnate.

Van Hollen’s proposal to make performance pay contingent on workers’ pay is good political messaging that draws attention to the ways in which executive pay practices impact middle class wages. And if we think about it in light of Lazonick’s story about stock buybacks, it’s clear how Van Hollen’s plan could have a positive impact: either corporations would not pay their workers more, which would preclude them from using a loophole that has shaped their executive compensation strategy for the last two decades and been a core driver of the rise in CEO pay, or they would have to spend money to raise wages that would have otherwise been spent on stock buybacks, which could reduce the amount of performance pay issued. In other words, the condition on which corporations could use the performance pay loophole might force them to use it less.

But there is also a potential drawback to Van Hollen’s CEO pay proposal. Because it doesn’t fully close the problematic loophole, but instead adds another condition, it may create further complexity in a corporate tax scenario that is already hyper-complicated and thus open to manipulation by corporate accountants. A more straightforward approach can be found in the Reed-Blumenthal and Doggett bills that would close the performance pay loophole entirely and cap the tax deductibility of executive pay at $1 million.

Another idea that would match the boldness of the financial transactions tax in Van Hollen’s action plan is to peg corporate tax rates to the ratio of CEO pay to worker pay. Last year, California state Senators Mark DeSaulnier and Loni Hancock introduced SB 1372, which raised the tax rate on companies that pay their CEO 100 times more than the median worker. According to the senators, “A CEO would have to make 300 to 400 times more than the median worker for a company to see a 3% increase in the corporate tax rate.” Companies with ratios less than 100 would see their tax rates decrease. DeSaulnier and Hancock’s bill got a majority of votes in the state senate, but did not move to the other chamber because, in California, a tax bill requires a two-thirds vote to advance. Nevertheless, the idea of holding corporations accountable for the relative amounts they pay their executives and their workers has been circulating in the U.S. Dodd-Frank already includes a requirement that companies disclose this pay ratio, though the SEC has been slow to put it into effect.

Van Hollen’s action plan is an exciting set of ideas for moving the country toward a more prosperous future. Ultimately, we need policy that erases the performance pay loophole entirely, but the CEO-Employee Paycheck Fairness is important in terms of drawing attention to executive pay practices and the way they affect working families and middle class wage earners, the engines of our economy. It’s time to have the debate about how we can effectively curb soaring CEO pay while building a broad middle class.

Susan Holmberg is a Fellow and Director of Research at the Roosevelt Institute.

Image via Shutterstock

Share This

Daily Digest - January 15: Free Community College Is "A Better Way" For Financial Aid

Jan 15, 2015Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Daily Report (AM950 Radio)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Daily Report (AM950 Radio)

Roosevelt Institute Fellow Mike Konczal discusses his recent article about the benefits of the president's free community college plan. Mike's segment begins at 28:00.

How Congress is Crippling Our Tax Collection System, in Charts (WaPo)

Catherine Rampell breaks down a report explaining how cuts to the IRS budget are impacting its ability to actually collect the taxes that are owed, with fewer staff to investigate tax evasion.

Republicans Use 'Death by a Thousand Cuts' Strategy to Deregulate Wall Street (The Guardian)

Republicans in the House have passed their first bill to weaken Dodd-Frank, and David Dayen says there are more to come as the GOP attaches deregulation to all kinds of unrelated must-pass bills.

Obama Stands At Crossroads On Financial Reform (ProPublica)

Jesse Eisinger says that with Republicans in control of Congress, it's time for the Obama administration to go big to protect the modest reforms created by Dodd-Frank.

As Profits Fall, JPMorgan Rejects Calls To Break Up The Megabank (Buzzfeed)

Matthew Zeitlin reports on recent suggestions that JPMorgan could be more profitable if it were split up. CEO Jamie Dimon instead blames regulators for drops in profits.

We Don’t Just Need ‘More Jobs’—We Need Higher Wages (In These Times)

Leo Gerard, President of United Steelworkers, says that the new jobs showing up on the jobs report aren't enough without higher wages for workers whose wages have been nearly stagnant for 35 years.

New on Next New Deal

Is Inequality Killing U.S. Mothers?

Roosevelt Institute Fellow Andrea Flynn ties the United States' embarrassingly high maternal mortality rates to economic inequality's broader impact on health and mortality.

Share This

Daily Digest - January 13: A Tax Plan to Fight Inequality

Jan 13, 2015Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Democrats, in a Stark Shift in Messaging, to Make Big Tax-Break Pitch for Middle Class (WaPo)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Democrats, in a Stark Shift in Messaging, to Make Big Tax-Break Pitch for Middle Class (WaPo)

Lori Montgomery and Paul Kane explain Rep. Chris Van Hollen's proposal, which is being pitched as the Democrats' "action plan" for fighting income inequality.

  • Roosevelt Take: Roosevelt Institute Chief Economist Joseph Stiglitz also promotes tax reform as a way reach broadly shared prosperity in this white paper.

Congress's Financial Plan for 2015: Curb Your Enthusiasm (The Guardian)

Siri Srinivas looks at the legislation that is likely to reach the House floor in 2015, and explains how Republican control of the Senate will impact this year's agenda.

Elizabeth Warren Wins on Antonio Weiss Nomination (Politico)

Ben White reports that Weiss has asked the president not to resubmit his nomination, instead accepting a position in Treasury that doesn't require Senate confirmation and carries less authority.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Brad Miller argued that Weiss's nomination was indicative of a larger anti-democratic approach to economic policy.

The House Is Set to Pass a GOP Bill Wiping Out Wall Street Reforms (MoJo)

Erika Eichelberger explains how the legislation, expected to pass this week, would weaken key provisions of Dodd-Frank, including delaying the Volcker Rule and weakening transparency rules.

Labor at a Crossroads: Can Broadened Civil Rights Law Offer Workers a True Right to Organize? (TAP)

Richard D. Kahlenberg and Moshe Z. Marvit explain why individual-focused civil rights law can and should be used on behalf of union organizing to promote the collective welfare of all workers.

Investors Shift Bets on Fed Rate Increase (WSJ)

Min Zeng writes that current market patterns indicate that investors think the Federal Reserve is going to hold off on increasing interest rates for longer than was initially planned.

New on Next New Deal

Van Hollen Tax Proposal An Economic and Political Home Run

Roosevelt Institute Senior Fellow Richard Kirsch praises Van Hollen's plan for forcing Republicans to admit that they are supporting Wall Street over working-class families.

Share This

On President Obama's Community College Plan and Public Options

Jan 9, 2015Mike Konczal

Looks like a smart plan he announced yesterday. I wrote about it, and public options more generally, here at The Nation. I hope you check it out!

Follow or contact the Rortybomb blog:
 
  

 

Looks like a smart plan he announced yesterday. I wrote about it, and public options more generally, here at The Nation. I hope you check it out!

Follow or contact the Rortybomb blog:
 
  

 

Share This

Daily Digest - January 7: Dynamic Scoring Comes to Washington

Jan 7, 2015Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

U.S. House Votes to Adopt Contentious Changes to Cost Estimates (Reuters)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

U.S. House Votes to Adopt Contentious Changes to Cost Estimates (Reuters)

Under new rules passed by the House, cost estimates on fiscal legislation will be measured using dynamic scoring, which could mask the impact of tax cuts, reports David Lawder.

Where Working Women Are Most Common (NYT)

Gregor Aisch, Josh Katz, and David Leonhardt examine data on women's employment rates throughout the country, considering the differing circumstances that lead women to work or not work.

Obama to Pick Former Bank of Hawaii CEO to Be Fed Governor (Bloomberg News)

Cheyenne Hopkins and Jesse Hamilton report that the President will soon announce the nomination of Allan Landon, who has worked at a firm that invests in community banks since 2010.

The Next Big Fight Among Democrats? (WaPo)

Greg Sargent says the next economic fight between populist Democrats in Congress and the Obama administration will be about how much to raise the salary threshold for overtime pay.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch says these fights between populists and the administration are about the soul of the Democratic party.

Why Is Wage Growth So Slow? The San Francisco Fed Has an Answer (WSJ)

Michael S. Derby looks at new research from the Federal Reserve Bank of San Francisco, which suggests that since employers fired workers rather than cut wages in the recession, hiring will increase before wages do.

The Mortgage Mistake (New Yorker)

James Surowiecki considers the costs of the American emphasis on homeownership and corresponding tax breaks, noting that homeowners' tax breaks don't really help low-income families.

Fair Value Accounting: The Obscure Rule Change That Could Make Student Loans More Expensive (Vox)

Matthew Yglesias explains how changing the method by which government accounts for federal credit programs could have difficult consequences for those seeking student loans and mortgages.

Share This

Daily Digest - December 16: Inequality Hurts our Children Most

Dec 16, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Inequality and the American Child (Project Syndicate)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Inequality and the American Child (Project Syndicate)

Roosevelt Institute Chief Economist Joseph Stiglitz says the impact of economic inequality in the U.S. is even stronger on its children, who could be protected through the right policy changes.

Taxpayers Could be Liable Again for Bank Blunders (CBS News)

Erik Sherman speaks to Roosevelt Institute Fellow Mike Konczal about the modification to Dodd-Frank built into the spending bill. Mike says the changes come straight from the banks.

Progressives Just Lost a Fight on the Budget. So Why Are They So Happy? (TAP)

Paul Waldman suggests that GOP control of Congress is liberating to the more progressive Democrats, because they no longer have to compromise to pass Democratic legislation.

The Year in Inequality: Racial Disparity Can No Longer Be Ignored (AJAM)

Ned Resnikoff says solving American economic inequality will prove impossible without acknowledging the racial disparities brought on largely by inheritance and homeownership.

Economic Recovery Spreads to the Middle Class (NYT)

Nelson D. Schwartz says the U.S. economy is showing its very first signs of the wage gains that will be needed for the economic recovery to reach the middle class.

Even With a GOP Congress, Obama Could Still Defend American Workers. Here’s How. (In These Times)

David Moberg puts together a list of ten items that the president could accomplish using the Department of Labor, in particular by strongly enforcing the Fair Labor Standards Act.

Share This

The Budget Fight Was the First Skirmish in the War for the Soul of the Democratic Party

Dec 12, 2014Richard Kirsch

Democrats had the leverage to nix a deal that opens the door to more Wall Street bailouts, but they caved in to Republican blackmail.

Progressives lost the battle over the budget last night because President Obama and a minority of Democrats took the side of Wall Street. It is the first of many losses we will see in the next two years as Republicans relentlessly pursue their corporate agenda. The bigger question is whether progressives will lose the war in the Democratic Party.

Democrats had the leverage to nix a deal that opens the door to more Wall Street bailouts, but they caved in to Republican blackmail.

Progressives lost the battle over the budget last night because President Obama and a minority of Democrats took the side of Wall Street. It is the first of many losses we will see in the next two years as Republicans relentlessly pursue their corporate agenda. The bigger question is whether progressives will lose the war in the Democratic Party.

Blowing up this budget deal should have been easy for Democrats. They were handed a perfect message: the Republicans are willing to shut down the government so they can bail out Wall Street the next time it wrecks the economy.

Democratic votes were needed because a group of 67 right-wing Republicans opposed the bill on the grounds that it did not go far enough in opposing the president’s executive order on immigration. The Republican split gave Democrats the leverage to demand that the bank bail-out provision be stripped from the bill.

But with President Obama twisting enough Democratic arms (57 in total) to give in to the Wall Street-engineered Republican blackmail, that powerful, winning message was diluted.

Democratic negotiators also agreed to the deal to repeal a provision of the Dodd-Frank law that prevents government bailouts of banks who engage in a form of risky trading. Their argument was “Republicans made us do it; it’s the best we could do.” But of course, with all the Wall Street money going to Democrats, that’s a convenient excuse. They can turn around and wink at the lobbyists who deliver Wall Street campaign contributions, playing a game in which the dupes are the American people.

The bailout of banks and Wall Street speculators remains deeply and broadly unpopular. It is an issue that generates anger among grassroots activists on the left and the right. For Americans who see Wall Street billionaires getting richer by gaming the system while families struggle to meet the basics, there could be no clearer contrast.

Progressive Democrats fought back. In a rapid-fire display of the energy and nimbleness of progressive organizations and champions in Congress, the deal was quickly exposed.

Senator Elizabeth Warren laid it out clearly on the Senate floor: “We put this rule in place because people of all political persuasions were disgusted at the idea of future bailouts… Republicans in the House of Representatives are threatening to shut down the government if they don’t get a chance to repeal it.”

In the House, progressive Democrats joined the call. California Rep. Maxine Waters, the senior Democrat on the House Financial Services Committee, said, “We don't like lobbying that is being done by the president or anybody else that would allow us to support a bill that ... would give a big gift to Wall Street and the bankers who caused this country to almost go into a depression.”

The vigorous pushback from progressive groups and their allies in Congress convinced Minority Leader Nancy Pelosi to break with the White House. Pelosi said that they were being “blackmailed” to vote for the bill, which she called “a moral hazard.” Still, Pelosi did not use her considerable powers of persuasion to get fellow Democrats to vote no.

For the next two years we will see Republicans do everything they can to deliver for corporate America at the expense of the American people. The only question is whether Democrats will enable them. Will President Obama continue to make compromise after compromise? Will Democrats in the Senate use the filibuster to block the Republican attack on working families? Will enough Democrats in the House keep coming to the rescue of a divided Republican Party?

We will see the same fight in the Democratic primary for president. Will Hillary Clinton break from the Wall Street wing of the party with which she aligned as a senator from New York? Will her challengers make the same sharp contrast that Senator Warren did, when she began her speech on the Senate floor by asking, “Who does Congress work for? Does it work for the millionaires, the billionaires, the giant companies with their armies of lobbyists or lawyers? Or does it work for all the people?”

As I wrote after the election last month, Democrats who used a populist economic message – who named the corporate villains and declared that “we all do better when we all do better” – won. Democrats who ran to the mushy middle lost.

But this is not just a fight for the soul of the Democratic Party, it’s a fight for our very democracy. As Justice Louis Brandeis said almost a century ago, “We may have a democracy or we may have great wealth concentrated in the hands of a few, but we cannot have both.”

Americans are yearning for champions who stand up for them. If we have any hope of changing the direction of our economy from enriching the rich at the expense of the rest of us and of recapturing our democracy from the CEO campaign contributors and Wall Street bag men, it will be because progressive forces and elected champions stand up not just to Republicans but to President Obama and any Democrat who takes the side of Wall Street against America’s working families.

It is clear that progressives and the American people will lose battle after battle in Congress over the next two years. The real question is whether we will lose the war. 

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

Share This

Daily Digest - December 9: One Strong Voice Against the Mega Cable Company

Dec 9, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Blows Against the Empire (Medium)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Blows Against the Empire (Medium)

Roosevelt Institute Fellow Susan Crawford praises the new "Stop Mega-Comcast Coalition" for uniting the voices of those who view the Comcast-Time Warner Cable merger as monopolistic.

Fed’s Lockhart Still Favors Mid-2015 for First Fed Rate Increase (WSJ)

Lockhart, President of the Atlanta Fed, calls for patience regarding raising interest rates, writes Michael S. Derby, who describes Lockhart as "a bellwether of policy makers’ consensus outlook."

Congress Races to Reach Spending Deal Before Shutdown Deadline (MSNBC)

With a potential shutdown approaching at midnight on Thursday, Benjy Sarlin says Congress is working through disagreements on issues like environmental regulation and financial reform.

Are West Coast Longshoremen Spoiling Christmas? (Politico)

As their union continues to negotiate wages and benefits, Mike Elk reports that the longshoremen are accused of slowing holiday season shipping by sticking exactly to company rules.

The Lame-Duck Congress Plots to Undermine Retiree Pensions (LA Times)

A proposed change – which has no public language only days before Congress goes on vacation – would decrease the pensions of already-retired workers on certain plans, writes Michael Hiltzik.

U.S. States' Revenue Growth Picks Up But Still 'lackluster' (Reuters)

Lisa Lambert reports on a new survey on state revenues and budgets, which says that stagnant wages are keeping revenues from growing as well.

Share This

Pages