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A parents’ program at our local school was one of many signs the Rust Belt Rebellion of the 2016 election was simply the tip of a giant iceberg that people don’t want to admit is a threat.

I nearly fell out of my chair when they told parents, “Your child must go to a four-year university” to have financial success. This often goes unsaid in “polite circles.” A handout showed someone with a bachelor’s degree earns $1.2 million more over a lifetime than a person with only a high school education.

Our elementary school crowd was told that a child’s school success by fourth grade dictates his or her path in life. No pressure!

It’s not only the Rust Belt that feels angst. There is a line in this country above which you may survive, and below which life will be incredibly hard. Not hard as in “pull yourself up by the bootstraps” but hard as in “you are out of luck.”

Worse, that line is moving upward, leaving more people below it. The parents plotting their kid’s college entrance from kindergarten age know it.

Do we have the guts to admit we’re having a harder time than Mom and Dad did? Families today are playing on a much different playing field.

Pew Research reported in October 2014, “in real terms the average wage peaked 40 years ago. The average wage of January 1973 ($4.03/hr.) has the same purchasing power as 2014’s wage of $22.41/hr.”

The National Institute on Retirement Security points out that 85 percent of private-sector employees had pensions in 1975. Today that figure is approximately 17 percent.

Money magazine reported in 2016 that nearly half of all American families have no retirement savings, the 50th percentile (median) have saved $5,000 and the average (mean) of all families have saved $95,000. The wealthy pull up the average.

Exponentially higher college costs and health-care costs compound the budget pain.

Families have survived so far by credit card borrowing and sending the wife, the traditional caregiver, to work. It is the working wife who has allowed the middle class to survive so far, according to economist Heather Boushey in her book “Finding Time.”

This means child care and senior care have to be covered some other way. Low-income families must rely on unreliable low-cost options, and any glitches can easily cost them their jobs due to limited workplace flexibility.

At the middle and professional class some workers can still “buy time” by paying for institutional childcare, senior caregiving services, housecleaning and more, but it is quickly draining the bank accounts.

Professionals increasingly feel they need to take that promotion that requires a two-hour commute, or the relocation, or the travel, so they can help Junior get into college – which, by then, we all suspect will cost a quarter of a million dollars.

The current economic system is breaking families at every level. This is compounded by a gutted middle, and the top 1 percent holding as much wealth as the bottom 90 percent, according to an October 2014 paper from economists Emmanuel Saez and Gabriel Zucman.

This inequality last occurred prior to the Great Depression in 1929.

We’re trending toward flat or lower wages, fewer workers and more robots. The financial sector now rules, churning dollars with borrowing for stock buybacks to prop up share prices for investors.

Spending on things of the past like infrastructure, wages and research and development is passe. In 2014’s Harvard Business Review, William Lazonick wrote that in the prior decade, companies in the S&P 500 spent 91 percent of their earnings on buying back their own stock and paying dividends.

“That left very little for investments in productive capabilities or higher incomes for employees,” he said.

Money isn’t trickling down. The “out of luck” line is going up. Soon, I suspect, the professional class will officially join the Rust Belt in protesting, as you can’t keep wringing money out of those already maxed out.

The supply side needs a demand side. It is unclear how the rising percentage of folks with no extra cash can keep a consumer-driven economy humming.

Maximizing shareholder value no longer equals sustainable growth and certainly has nothing to do with today’s average family, unlike when Henry Ford famously wanted to make sure his workers earned enough to afford his product.

Political rants or catchy slogans miss the point. Sleights of hand like privatizing infrastructure or gutting the EPA are not going to fix what ails us.

The system has changed in ways few dare to admit because we’re busy desperately trying to stay above that ever-moving line.

The huge, necessary shifts in our system may be good, or may be fraught with complete chaos. The first step is admitting we have a problem.

Maria Gutzeit is a chemical engineer, business owner, elected water official and mom living in Santa Clarita.

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  • Gil Mertz

    Extremely well written, Maria. Seriously, well done and very thought provoking. A refreshing change for Democratic Voices.

    But I must also add, It was one of the most articulate indictments of the last eight years I’ve ever seen.

  • Ron Bischof

    “Do we have the guts to admit we’re having a harder time than Mom and Dad did? Families today are playing on a much different playing field.”

    You bet, Maria! Houses are often double the size we grew up in, with central heating/air, twice the number of bathrooms, all manner of electronic conveniences, home networks, mobile devices, etc. Also, an immeasurably higher quality and more reliable automobile for each parent, and often one or more for the teenagers/college students. In short, the standard of living and purchasing power of everyone, including those at or below the Federal poverty line has increased as well. Pointing to slow wage growth and the “1%” isn’t really a complete picture, is it?

    You know what else is more expensive than when we were children? Government. It’s exponentially larger with taxes to pay for it. And as you noted, with government subsidizing education, that cost has risen orders of magnitude as well, far exceeding the rate of inflation.

    Those low skilled blue collar jobs that often didn’t require a High School Diploma are disappearing largely due to automation. With corporate ERP (Enterprise Resource Planning) software, many business processes that required white collar labor to process and route paper are being eliminated as well.

    So yes, the transformations in our technological society are disruptive. Let’s also realize the solution isn’t artificially raising wages or taxes on a targeted socioeconomic class.

    • charlesmauricedetallyrand

      We are on the cusp of potentially the most disruptive technological transformations since the beginning of the industrial revolution and it will happen far more quickly and may be more revolutionary than anything we have ever seen before. It won’t just be about routing paper. It’s not a matter of if, it’s a matter of how much and how quickly and more so what unintended reactionary forces it will generate. This will create enormous opportunity, create things of incredible wonder and value, and yet it will also leave in its wake a great amount of disparity and with it poverty, the type which can lead to world wars despite the fact the world will contain more “stuff” nor the many advancements it creates. If you can understand the universal approximation theorem then you may know what I”m talking about and just how quickly and soon it might happen.

      I could argue many of your points listed, but instead I’ll just say that we may need to adopt something that even the great prophet of neoliberalism, Milton Friedman, argued in favor for — a guaranteed basic income.

      • Jim de Bree

        Charles–you may be right. I presume that you have read Rise of the Robots by Martin Ford. It discusses the technological disruption in detail.

        • Ron Bischof

          Thanks for the tip, Jim.

          I purchased ebook and have it on my reading list.

          • Jim de Bree

            This is the most important book I have read in the past decade. It is not a fast read, but it is extremely informative and was certainly transformative in terms of my thinking.

        • charles maurice detallyrand

          No haven’t but I do read books like machine learning and pattern recognition by christopher bishop or the elements of statistical learning. I feel guilty reading fiction or non fiction books unfortunately. I have several lifetimes worth of tech, comp sci, and math books I’d need to get through before I feel like I can rest enough to dive into anything for my own enjoyment. While the conclusions are pretty obvious to infer potential outcomes are regularly discussed in the circles of those working in or studying these fields. There were recent news articles about Silicon Valley execs building bunkers in preparation for the potential backlash due to automation.
          It isn’t there yet, there’s a fair amount of expertise needed to be able to work on problems in a specific domain. However, non computer scientists are starting to get into it. I think a team of doctors using a small data set (usually data sets are very large, yet this is an area where their expertise as doctors helped quite a bit I think) were able to apply an algorithm from a kaggle competition to predict if photographs contained examples of skin cancer to a level with a higher accuracy if not same level of that of most doctors. And that’s where we are headed, this will require less and less expertise to be able to implement and then people in various fields will be able to apply machine learning algorithms, use neural nets, run gpu instances on AWS and apply this to a vast area of fields we can’t even consider. That’s the near future anyways. The distant future we can’t even predict because it’s at least somewhat likely we won’t even be able to imagine or conceive of it. But in any case as machine learning becomes more accessible to the general public we are going to witness enormous change, in all sectors of our economy. The very definition of skilled and unskilled labor will change very much I fear. Yet I believe it can provide for a much better, a brighter future for mankind. But capitalism’s efficiency might finally outpace itself and unravel.

    • Jim de Bree

      Ron, I believe that you are comparing baby boomers with their parents, while Maria is comparing millennials to the baby boomers. The homes to which you refer are owned by baby boomers, such as you and I. Millennials are not buying homes because they cannot afford to do so.

      When you say that purchasing power, including those at or below the poverty level has increased, over what period are you referring?

      In 1974, when I graduated college I got a job paying $12,400 a year. Lots of graduating students got jobs paying comparable amounts back then. If you multiply that amount by the change in the consumer price index from 1974 to 2017, a comparable salary today would be $67,505. How many students graduating college can get a job paying that amount?

      In 1978, when I was 25, I made $15,800 when I purchased my first home- a condo on Sepulveda Boulevard near Plummer Street in what is now North Hills. That home cost $57.000. I put $6,000 down and had a mortgage payment of $400 a month. My HOA fee was $19 per month. According to Zillow that exact unit is worth about $309,000. That requires a $62,000 down payment and will result in a monthly mortgage payment of about $825. Today the HOA fee is $350 per month. When I lived in that neighborhood, it was a safe area. Today it is a high crime area with gang problems. So I am not sure that the property is comparable. Even if it were, how many millennials under the age of 30 are able to buy that condo? None of my children could do so.

      I am not sure what your “full picture” is, but I think Maria has done a commendable job of comparing the financial picture we faced forty years ago when we started out with the financial picture our children face today. The majority of Americans are experiencing a decline in their standard of living. We have also seen a greater concentration of wealth in the past forty years. Trump got elected because he is “going to make America great again.” In other words he wants to return to when the average American’s purchasing power peaked. Why would that be a successful campaign slogan if everyone’s purchasing power has increased?

      In 1974, the percentage of the American population living at or below the poverty level was 8.8%. Today it is 10.4%. So we have more people living at the poverty level today than we did in 1974.

      I will grant you this—you are right about the purchasing power of a family of four living at the poverty level. In 1974, that family made $5,038. Adjusting that income by the cumulative change in CPI, what cost $5,038 in 1974 costs $27,427 today. The federal poverty level for a family of four is $28,741, so the income has risen by $1,314 more than the cost of goods as measured by CPI. But then we must also consider that CPI understates the rate of inflation. We also are not sure whether CPI accurately measures the change in costs for the goods and services that people at the poverty level consume.

      You make an excellent point that artificially raising wages without commensurate increases in productivity is not the answer and will result in the acceleration of job replacement by robotics and artificial intelligence, but I fail to see your point with respect to raising “taxes on a targeted socioeconomic class.”

      In 1974, the top tax rate on investment income was 70%. The top tax rate income generated by the performance of personal services was 50%. After thirty-six years of tax cuts, investment income is taxed at a top rate of 23% while the top tax rate on personal services income exceeds 45%. Many middle class people pay taxes at a higher rate than the Wall Street guys. Furthermore, much of what is invested is invested by retirement plans. The investment gains realized by those plans is ultimately taxed at higher ordinary income rates. So when the investment gains are taxed as pension income, they are taxed at higher tax rates.

      $24.8 trillion is invested by retirement funds. The bulk of these investments are held by the middle class. The income generated by those investments, including capital gains will be taxed at ordinary income rates as high as 45%. The wealthy who hold their investments outside of retirement plans enjoy much lower tax rates usually no higher than 23%. So yes, we need to target tax increases at a certain socioeconomic class. Unfortunately, the Republicans’ tax plans seem compound rather than ameliorate this phenomenon.

      • charles maurice detallyrand

        People like to complain about millennials but I truly believe it’s baby boomers that are the most entitled generation.

        • Jim de Bree

          I agree. Baby boomers defaulted on billions of dollars of student loans in the 1970’s and 1980’s. That led to draconian provisions that are an albatross around the millennials’ necks.

          Baby boomers are racking up government debt at rates that they cannot be repaid-leaving the millennial to clean up the mess.

        • Ron Bischof

          Boomers are invested in leveraging government to enable ever increasing transfer payments to the wealthiest demographic in the country, i.e., themselves.

      • Ron Bischof

        Reviewing Maria’s column, she’s addressing three generations, boomers, their parents and Millennials, Jim. Her notation of “working wives” started post-WWII, with 28.6% labor force participation in 1948 to 46.8% in 2015.

        To clarify, I was highlighting that the standard of living has increased for all socioeconomic groups in the USA. Comparisons of the CPI to average wages and California housing prices miss important measures of the quality of life enjoyed by all, including those at or below dynamic poverty indices.

        Due to your experience as a tax advisor to high net worth individuals, I believe you’ll agree that innovative tax strategies will always outpace tax policies that seek to capture a greater share of wealth from this demographic. No doubt you’re aware that the USA has one of the most progressive income taxes among the OCED countries and investment income is the new frontier to feed the inexorable demands of the metastasizing administrative state.

        Here’s an amusing video that highlights the issue is spending and “eating” all the assets of the “rich” won’t put a dent in the revenue requirement trajectory:

        So yes, Maria provided a nice summary of the economic challenges facing Millennials. The underlying message about income inequality is a miss, however.

        • Jim de Bree

          Ron—no doubt that technology and other advancements have generally improved the quality of life for society as a whole and for most members. But Maria’s point is that those benefits have not been spread evenly throughout society. Furthermore, many people have to work a lot harder today than they did fifty years ago to keep pace with the changes.

          As a side note–The past 30 years has seen a dramatic concentration of wealth, putting us on a par with the late 1920’s. Historically, these types of wealth concentrations precede economic downturns.

          Ron stated: “Due to your experience as a tax advisor to high net worth individuals, I believe you’ll agree that innovative tax strategies will always outpace tax policies that seek to capture a greater share of wealth from this demographic.”

          Of course, I made a great living designing tax effective strategies. The tax laws over the past twenty-five years have, on balance, sought to reduce the effective tax rates for the wealthiest demographic rather than increase it. Clearly that is on the Trump/Republican agenda. You and I will pay more tax as a result.

          By the way, I did not bring the greatest value to my client by implementing tax strategies. The value I brought was in structuring transactions that ameliorated tax risk. Investors hate risk; therefore reducing risk allowed transactions to go forward. From a tax advisor’s perspective, structuring transactions is more lucrative than implementing tax strategies.

          You are right that the government wants to change the rules because politically they cannot raise tax rates. The most significant structure in which I worked on was designed in 1992. It pretty much revolutionized the real estate capital markets. There was nothing abusive about it, but it was a tax deferred alternative to other transactions that were taxable. While my transaction was certainly not abusive, about ten years ago, a Wall Street tax attorney created a new version that was used by corporate America to create notional corporate deductions in certain corporate IPOs. Last fall Elizabeth Warren wanted to hold hearings about the abuses resulting from the use of the structure. She wants to eliminate all versions of the transaction, whether or not they are abusive.

          Ron also stated: “No doubt you’re aware that the USA has one of the most progressive income taxes among the OCED countries and investment income is the new frontier to feed the inexorable demands of the metastasizing administrative state.”

          I don’t agree with your assessment of the progressivity of the US tax rates. In your analysis you make the common mistake of comparing statutory rates. The real measure is the effective rates—i.e., what rate of tax is actually paid. The statutory rate analysis ignores things such as FICA taxes, Medicare tax, etc.

          According to IRS statistics, the highest effective rates are paid by households with income between $125,000 and $1.1 million. Households with incomes in excess of that amount have a larger investment income component. Most components of investment income—dividends, capital gains are taxed at rates that are half of the tax rate on other types of income. The wealthy also own real estate which is favorably taxed because of depreciation deductions. These favorable tax regimes generally do not exist in other OCED jurisdictions. US households in the $125,000 to $1.1 million range generally pay tax at a higher rate than comparable households in other OCED nations.

          When the tax rates were modified in 2003 under the Bush regime, investment income was taxed at a maximum rate of 15%. Personal services income (wages, salaries, etc.) were taxed at a maximum rate of 39%. Today personal services income is taxed at a maximum rate of 46.5%, which drops to 42.6% at a certain formulaic point. Investment income for those who invest outside of a retirement plan, is taxed at a maximum rate of 23.9%.

          Furthermore, the tax rate cuts enacted in 2003 also changed several of the accounting rules to accelerate the timing of when certain types of income is taxed. This resulted in a greater tax burden being placed on operating businesses. Investors were generally unaffected by these changes.

          Taxing all types of income at the same rate was a hallmark of Reaganomics. So your reference to a “new frontier” is essentially a return to Reaganomics. The idea was to tax all income at the same rate so that the marketplace would reward the best performers without any tax subsidies.

          California does not have the same tax rules that the federal government does and they have an ultra-progressive tax regime, which I believe unfairly over-taxes the wealthy.

          • Ron Bischof

            “But Maria’s point is that those benefits have not been spread evenly throughout society.”

            Rather than debating the minutiae of tax policy without agreement, I’ll point out that it’s not the Constitutional role of government to “spread the wealth” via taxation. It cannot be successful long term and only distorts economies. Citizens need to ensure that government doesn’t engage in policies that unfairly advantage one cohort while disadvantaging another.

            People aren’t equally capable and therefore any attempt to regulate outcomes to achieve a semblance of income equality are wasteful and prone to failure. The government just doesn’t control levers and knobs that will regulate prosperity for all.

            Apparently, we fundamentally disagree on technocratic “solutions” to disparate effort and capabilities of individuals. From what I’ve read and heard, Maria shares a belief in a technocracy managing an administrative state.

            In my opinion, focus should be directed towards reductions in growth of public sector spending that outpaces increases in GDP rather than extracting more revenue out of the economy. The latter will only be used to grow Leviathan to no good effect for citizens and small business.

          • Jim de Bree

            Ron stated: “Rather than debating the minutiae of tax policy without agreement, I’ll point out that it’s not the Constitutional role of government to “spread the wealth” via taxation.”

            I never said it was. In fact, the premise of Reaganomics is let the marketplace decide the winners and losers without tax incentives. Conversely, I also believe that it is not the Constitutional role of government to concentrate wealth via taxation or other means. Our tax policies, fiscal policies and overall regulatory system have contributed to that concentration.

            We have had this discussion many times and we fundamentally disagree. You believe we should subsidize investment, while I think all types of income should be taxed equally.

            I agree with your concerns about the rate of government growth, however, we are seeing a decline in our wealth because we cannot compete effectively in a global economy. That is the underlying phenomenon driving Maria’s concerns. That causes people to want to have the government intervene which invariably increases debt to disastrous levels. Unfortunately, we may have passed the point of no return because so much of our government spending growth is in non-discretionary sectors. What is so worry some about this is that the government will either have to grow its revenue base just to service the debt or will have to pursue inflationary policies.

            Historically, whether in the US or elsewhere, wealth concentration does not have a happy ending. One thing that history shows is when the middle class shrinks, political instability results. I think that is a huge part of the Trump phenomenon. So far I have not seen tax policy from Trump or the Republicans that is fiscally responsible.

          • Ron Bischof

            “You believe we should subsidize investment, while I think all types of income should be taxed equally.”

            Not so and that’s an assumption on your part unsupported by any statements I’ve made.

            To clarify this, what I oppose is growing revenue by increasing taxation on investment without corresponding reductions in other taxation and government spending.

            You are wise and experienced enough to know that’s what’s likely to occur rather than a rebalancing of labor and capital taxation. There doesn’t exist in D.C. the political will and ability to holistically reform our tax system because no party or politician wishes to take the political risk that would entail. The political class is too focused on infighting for power. So, the tax code will be tweaked around the edges and continue to be deeply flawed.

            Income inequality, which has always existed and has increased in the social democracies of Europe as well, cannot, as you pointed out, be resolved by government intervention. The populist appeal for “fairness” is a trojan horse for increased taxation and government spending.

            Federal and most state spending doesn’t increase global competitiveness. Lowering taxes and reducing regulatory burdens spurs economic growth with in turn increases government revenues while reducing debt increases.

            The economic pie isn’t finite and to my original point, economic growth provides opportunity and benefit to all. It’s not the “rigged” zero sum system that economic populists like Bernie Sanders and Elizabeth Warren posit.

          • Jim de Bree

            I am sorry if I misconstrued your point.

            I agree that there will be no rebalancing because the Republicans favor taxing investment income at lower rates. In fact, the Republican proposals add considerable complexity to individual tax rates because there will be three or four classes of income that will be taxed at different rates.

            As to the populist appeal for fairness, I see it first hand. My last year before I retired I worked on a client whose income was almost nine figures. His income was all investment income and he paid tax at an effective rate that was about a third of my effective rate.

            The people who pay the highest effective rates are families where both spouses work and have good paying jobs. Those families, for the most part, have their investments in IRAs and 401(k) plans which are ultimately taxed at ordinary rates. So there is considerable inequality in the system driving populism.

            The penultimate sentence in your post is pure Keynesian theory, which I think is sound, but we have not had an opportunity to prove that it works. The problem is that reductions to the statutory rates have always been accompanied by substantial additional government spending, so it is impossible to conclusively demonstrate the extent to which the economic growth is attributable to tax reductions. See both the Reagan and Bush 43 administrations.

            I am very concerned about the Republicans plan because even under their budget estimates which contain dynamic scoring to account for the resultant economic growth, trillions of dollars of deficits are run up.

            Furthermore, if we start imposing tariffs or deny tax deductions for imported labor and materials, it is likely that we will see the economy shrink, just as it did in the 1930’s.

            It will be interesting to see how this develops.