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How Democrats can unclamp the economy

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A bit belatedly, Democrats have detected a deficiency in their 2014 midterm campaigns: They didn’t really have an economic message.

Turnout collapsed among the voters who typically benefit from Democrats’ successes at boosting the economy — so much so that the Republicans’ share of the big-city vote grew by 10 percentage points from 2012, according to the exit polls (though Democrats still won 61 percent of that vote). What that means is that minority and working-class voters in cities such as Chicago, Boston and Baltimore simply didn’t go to the polls, enabling Republicans to win the governorships of Illinois, Massachusetts and Maryland.

Overall national turnout was the lowest since 1942 — another banner Republican year.

The Democrats’ problem wasn’t that the Obama administration had failed to get the economy growing again; it’s been growing since late 2009. It’s that the economy doesn’t grow like it used to. In particular, it no longer rewards labor at almost any point on the economic spectrum. The significance of IRS data showing 95 percent of post-recession income growth going to the wealthiest 1 percent is that the economy rewards investment rather than work, capital rather than labor.

Maximizing shareholder value has meant minimizing employee hours and pay — which explains how many large companies can boast of rising profits even as their sales stagnate or decline.

What, then, are the Democrats to do in an economy where merely engendering growth no longer benefits the vast majority of Americans, and their voting base least of all? It’s clear from election results in Arkansas, Nebraska and South Dakota that Americans even in the reddest of states will vote to raise the minimum wage. But how do the Democrats propose to jump-start the stalled incomes of Americans who make more than the minimum?

Improving our education system is a necessity but the dividing line in our economy isn’t between the well educated and the poorly educated; it’s between those who derive their income from their investments and those who get it from their work.

Moving the economy to full employment is a surefire way to give workers the bargaining power they’ve lacked since the late 1990s but that’s plainly impossible, absent a massive government stimulus. Given the widespread mistrust of the federal government, another stimulus is hardly likely. The sole exception might be increased spending on infrastructure. And if direct spending is still too steep a hill for Republicans, then a public-private infrastructure bank could be established.

But the economic populism abroad in the land opens other doors for Democrats. Their mission should be to advance policies that make the economy fairer without, for now at least, expanding government.

One way to do that would be to reduce taxes on the middle class and the poor. Cutting the payroll tax would be a good place to start, offsetting the shortfall by instituting taxes on investment income that would go, like payroll taxes, to supporting Social Security and Medicare.

Another option is to advance the cause of paid family and medical leave. Corporate tax reform offers still another avenue. How about reducing taxes on corporations that pass along the nation’s annual productivity increase to their employees through wage hikes, while raising taxes on corporations that don’t?

How about reducing taxes on corporations that don’t exceed a 100-to-1 ratio of chief executive pay to that of their median employee, and raising taxes on those corporations with higher ratios?

How about lowering taxes on corporations that put employee representatives on their boards?

If the Democrats don’t inject the issue of income inequality into the battle for corporate tax reform, they will miss one of their very few chances to boost Americans’ economic power and incomes.

Harold Meyerson is editor-at-large of The American Prospect.

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