J. Peder Zane

The low-tax, needed-spending dance

Stagnant wages are a defining issue of our time. Unfortunately, so is stagnant debate.

Instead of honest inquiry, we get predictable talking points from politicians and partisan pundits. Our problems may be as intricate as fractals, but they proclaim that all can be solved by the round hole or square peg of their rigid ideology. In the tiresome tellings, no issue is impervious to the miracle balm of lower taxes or greater government spending.

North Carolina Republicans crow about the “Carolina Comeback.” They have accomplished much – cutting many taxes, paying off billions in debt, raising teacher pay and generating a budget surplus while North Carolina has outperformed the national economy since 2010.

Republicans, however, have been unable to revive the most important economic indicator: money in our wallets. A recent study found that the average North Carolina household has seen its income drop by 8 percent since 2007, which translates into a loss of $4,280 for a typical family.

By this crucial measure, there’s as much come down as comeback in North Carolina.

Instead of addressing this problem head-on, North Carolina Republicans dance around it. That’s because these officials, who face the voters every two years, would have to admit that there is little they can do to turn things around right away. Government cannot presto-magico create millions of private-sector jobs.

For their part, North Carolina Democrats have seized on lower and stagnant wages to attack the GOP. They claim that raising taxes and the minimum wage – which would, in fact, make it harder for the lowest-skilled workers to find jobs – would solve much of this problem.

In truth, the wage issue is a national problem. Despite – and perhaps because of – trillions of dollars in new spending and debt, President Obama has been unable to lift incomes. Instead, he has presided over the weakest recovery in post-war history. This is why Democratic candidates did not take the president’s advice, or that of countless newspaper editorial pages, and run on his economic record in 2014.

The truth is that North Carolina Republicans cannot super-charge our economy so long as the national economy struggles. And America will have a hard time achieving liftoff so long as powerful global forces – including the rise of labor-saving technology, increased competition from abroad, Europe’s woes and China’s slowdown – drag us down.

Instead of leveling with the American people, Democrats claim these profound dislocations are the result of unfair tax policies that have allowed greedy rich people to plunder the poor and middle class. Hence their laser-like focus on “inequality” and demands for even more redistribution.

In particular, left-leaning politicians and commentators note, correctly, that median household income is about where it was in 1988 . They use this falsely to suggest that our nation’s problems can be traced back to the “failed” policies of Ronald Reagan and
“trickle-down” economics . In fact, supply-side economics – lowering taxes so business has more money to hire and invest – worked better than advertised. When Reagan’s reforms began to kick in in 1983, median household income was $45,760. By Reagan’s last year in office, it had risen to an inflation adjusted $50,776. Notwithstanding a few hiccups, it continued to rise, peaking at $55,627 in 2007.

As noted, Reagan cannot claim all the credit. Since the 1980s, the Internet, personal computers, cell phones and other new technologies have generated vast wealth and opportunity. And Obama does not deserve all the blame. But how anyone can argue that Reagan’s policies failed and Obama’s have succeeded is beyond me.

Nevertheless, facts are both stubborn and complex. As Reagan espoused free market reforms, the United States greatly expanded the welfare state. Between 1950 and 1965, the federal government’s non-Defense spending was equal to 7.8 percent of GDP. Now, it is 16.8 percent of GDP – which helps explain why we are $18 trillion in debt.

There has, however, been an upside to that spending. Last year, the Congressional Budget Office reported that the lowest 20 percent of income earners saw their market income grow just 16 percent between 1979 and 2011; however, after taking taxes and transfer payments into account, their income has increased 72 percent. That is fairly close to the 87 percent increase enjoyed by the top 20 percent.

An honest appraisal would say that there is no silver bullet to our economic problems. The Republican focus on low taxes and growth is the best path to jobs and opportunity. But, as many Americans are buffeted by broad economic forces beyond our control, the Democratic push for transfer payments is also necessary.

It is easy to take sides in this debate; the hard part is striking the proper balance between them.

Contributing columnist J. Peder Zane can be reached at jpederzane@jpederzane.com.