Who Stole the American Dream?

by Hedrick Smith

  Graphs of the two trends overlap almost perfectly. In the early twentieth century, before the Depression of the 1930s, the income share of the top 1 percent in the country was at its peak, more than 24 percent of the total, and the division between the political parties was sharp, according to McCarty, Poole, and Rosenthal. From the 1940s through the 1970s, during the era of middle-class power and broad bipartisanship, we had less income inequality in the period of the Great Compression. Since the 1980s, the schism between the parties has widened and so has the wealth gap.

  Litmus Tests:

  The Minimum Wage and the Estate Tax

  There is ample evidence that the collapse of the political middle and America’s modern polarized politics have helped bring about policies that accentuate the nation’s wealth divide. These political trends have powerfully affected key pocketbook issues at both ends of the economic spectrum, altering the way the pie is shared among winners and losers in the American economy.

  Two litmus tests are the minimum wage and the estate tax, each intended to narrow the wealth gap.

  Not only does the minimum wage put a floor on the lowest American pay scales, but that floor exerts an upward push on average wages. Since the late 1960s, as the political middle shrank and business lobbies gained power, the real value of the minimum wage has fallen by more than 40 percent, despite consistent public support for a higher minimum wage.

  That change is no accident. It reflects the new partisan politics.

  Traditionally, liberals seek to raise the minimum wage and to cover as many workers as possible. Conservatives, arguing that the minimum wage artificially raises the cost of labor, have fought to keep the minimum wage low and to limit its scope. From the 1930s through the 1960s, many moderate Republicans joined Democrats in supporting periodic increases in the minimum wage to help workers keep up with inflation. But in the Carter Congress of 1977, Republicans refused to index the minimum wage to inflation. After that, as inflation rose and eroded the purchasing power of minimum wage workers, their pay fell behind inflation. Finally, in 2007, Congress raised the federal minimum to $7.25 an hour, or full-time yearly pay of $15,080—but that is still 15 percent below the real value of the federal minimum back in 1968. In 2005, twelve states passed state minimum wages above the federal level, and eight of them, from Ohio to Arizona and Florida to Washington, have boosted their minimum wage again in 2012 by indexing it to inflation.

  At the other extreme, the estate tax on inherited wealth, which affects only the richest 2 percent of Americans, has shifted increasingly in favor of the super-rich. The tax was established under President Woodrow Wilson in 1916, and until the mid-1970s, it imposed a levy of 77 percent on estates over $250,000. Anti-tax conservatives have fought to lower or abolish the estate tax, while political moderates and liberals supported the tax. In 1976, the exemption from the estate tax was raised to $1 million, adjusting for inflation, and under President Reagan, the estate tax rate was cut to 55 percent.

  But President George W. Bush made the big changes in 2002. He passed a bill to phase it out entirely, reducing it in stages from a 55 percent rate in 2001 to zero in 2010, saving the super-rich $186 billion in taxes.

  With the Bush cuts due to expire in 2011, President Obama proposed in December 2010 to restore the old pre-Bush tax rates (55 percent on estates over $1 million), but congressional Republicans blocked him.

  Gridlock was the ally of the wealthy. With the Senate filibuster rule working for Republicans, they refused to extend Bush’s tax cuts for the middle class unless Obama agreed to extend Bush’s tax cuts for the rich, including a 35 percent cap on the estate tax rate and a tax exemption for estates worth $10 million for couples instead of the old pre-Bush rate of 55 percent on estates larger than $3 million. To break the gridlock, Obama had to accept estate tax cuts for the rich.

  Those two policies—the failure of an increasingly polarized Congress to help the working poor and lower middle class by indexing the minimum wage to inflation and congressional approval of ever more generous estate tax cuts for the super-rich—have contributed to the great economic divide in America today. They illustrate the economic costs of polarized politics.

  “The fight over estate tax repeal seems uniquely symbolic of the skewed class politics of the New Gilded Age …,” commented Princeton University political economist Larry Bartels. “To protect the inherited wealth of multimillionaires seems perversely contrary to the interests of the 98% of American families whose estates will never reach the threshold for taxation. How could a democratic political system arrive at such a policy?”

  Good question.

  CHAPTER 19

  THE RISE OF THE RADICAL RIGHT, 1964–2010

  ASSAULT ON THE MIDDLE-CLASS SAFETY NET

  Let me now … warn you in the most solemn manner against the baneful effects of the spirit of party…. It serves always to distract the public councils and enfeeble the public administration. It agitates the community with ill founded jealousies and false alarms, kindles the animosity of one part against another….

  —PRESIDENT GEORGE WASHINGTON,

  Farewell Address, 1796

  The GOP’s evolution in Congress since the 1970s has been one long move to the right. Like a retreating glacier, the GOP’s moderate edges continually vanish … leaving a hardened core of increasingly unflinching conservatives.

  —JACOB S. HACKER AND PAUL PIERSON,

  Winner-Take-All Politics

  Zero-sum politics and ideological siege warfare are the new order of the day.

  ROBERT GATES,

  former secretary of defense

  THE MOST STRIKING and profound change in American politics during the last half century—a change that has sharpened America’s political divide—is the transformation of the Republican Party and its takeover by the radical Right.

  From its beginning in the 1960s, the militant New Right has been bent on political revolution. “We are different from previous generations of conservatives,” asserted Paul Weyrich, the 1970s political genius nicknamed the Robespierre of the New Right for his revolutionary zeal and ideology. “We are no longer working to preserve the status quo. We are radicals working to overturn the present power structure in this country.”

  They have largely succeeded, reshaping the Grand Old Party with a series of political mutinies beginning with Senator Barry Goldwater in the 1960s and running up to the Tea Party today. Their persistent ideological insurgency has largely overthrown the Old Right, the mainstream Republican Establishment. In its place, the New Right has preached and practiced a new brand of conservatism, rejecting traditional bipartisanship, pushing the country into confrontation politics, and moving the nation’s political center of gravity in its own direction.

  “Bathtub” Conservatism

  In terms of policy, the New Right has turned its back on the old mainstream consensus. Its hallmarks have been periodic assaults on the once sacrosanct bulwarks of the middle-class safety net, Social Security and Medicare, its relentless push for lower taxes, especially for the super-rich, and its desire to shrink government by shutting down entire cabinet departments and agencies.

  Its goals were vividly voiced in a radio interview in 2011 by Grover Norquist, a leader of the College Republicans in the 1980s and now Washington’s most influential anti-tax activist. “I don’t want to abolish government,” Norquist began, tongue-in-cheek, “I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

  In terms of tactics, the New Right has mirrored the confrontational politics of the firebrand Old Left. Its leaders normally reject compromise. They put ideological purity ahead of winning short-run victories. Their technique has been to sharpen partisan divisions by exploiting wedge issues that play upon concerns of white middle-class religious voters, such as abortion, school prayer, and ERA (women’s rights), and by taking extreme positions and then waging uncompromising battle on “anti” issues—anti-tax, anti-union, anti-gay, ant
i-Washington, anti-government.

  As Yale historian David Critchlow put it, “The Right’s ideology [is] vehemently antistatist … the belief that centralized government should be feared as an enemy to individual liberty.”

  With this strategy, the radical Right has engineered the Republican Party’s steady (if interrupted) march to the right, decade after decade. As scholars have noted, the Republican Party of Ronald Reagan in the 1980s was to the right of Richard Nixon’s Republican Party in the 1970s; the party of former House Speaker Newt Gingrich in the 1990s was to the right of Reagan’s party; the party of George W. Bush in the 2000s was to the right of Gingrich’s party; and the party of Tea Party activists is the furthest right of all.

  The Democratic Party has changed, too, but far less than the Republicans. Democratic officeholders have become philosophically more alike, more cohesive. Liberals from safe congressional districts dominate their caucuses more now than in the past, especially after many conservative Democrats lost in the 2010 elections. But paradoxically, as a group, congressional Democrats have been dragged toward the right by the gravitational pull of the Republican Right.

  Goldwater: A New Brand of Conservatism

  The Republican Right call themselves conservatives. So do 34 percent of all Americans. But there are many brands of conservatism. The Eastern Establishment conservatism of Wall Street and Corporate America promoting the global trade and tax agenda of big business differs from the heartland conservatism of small towns and rural counties that dislikes big government in principle but wants farm subsidies, federal loan guarantees for small business, and subsidized rural hospitals and electrification. Both of those differ from the social conservatism of Catholics and Evangelicals moved by issues like school prayer, abortion, and gay rights.

  The trademark conservatism of the militant New Right was coined by Senator Barry Goldwater of Arizona, a handsome, straight-talking, ardently anti-government, anti-union conservative who lit the fire of ideological rebellion within the Republican Party in the 1960s. By breaking with traditional GOP conservatism and spurning the bipartisan consensus that governed America, Goldwater opened a polarizing cleavage between the two parties and provided an ideology for New Right crusaders for the next fifty years.

  As a vehemently anti-union head of two family-owned department stores in Phoenix, Goldwater was an apostle of pure laissez-faire capitalism. He rejected the mainstream conservatism of Dwight Eisenhower and Richard Nixon, who talked about limited government but embraced the status quo, including New Deal programs, and who pushed government regulation of business to protect consumers and workers.

  By contrast, Goldwater advocated repealing or revamping Social Security and warned that the welfare state and a permissive society were undermining America’s morals. He accused Eisenhower, a small-town, middle-of-the-road Kansas conservative, of succumbing to the “siren song of socialism.” Goldwater lashed out at Ike’s budget. “It subverts the American economy,” he declared, “because it is based on high taxes, the largest deficit in history, and the consequent dissipation of the freedom and initiative and genius of our productive people.”

  On many issues, Goldwater struck themes that are echoed by today’s Tea Party. He tapped into the suspicions of the newly Republican Sun Belt toward Eastern Establishment Republicans and corporate leaders who had accommodated the welfare state. His vows to stop government from poking its nose into business won favor with ranchers, oilmen, and nouveau riche entrepreneurs in the Southwest. His attacks on Washington resonated with southerners who remembered that Goldwater had opposed Johnson’s civil rights laws. His fervent anticommunism appealed to isolationist patriots furious at Eisenhower’s internationalism, his support of the United Nations. And Goldwater’s strident denunciations of labor unions gave him a beachhead in Corporate America. In one major speech, he lashed out at Walter Reuther and the United Auto Workers as “more dangerous to our country than Sputnik or anything Soviet Russia might do.”

  Above all, Goldwater infused a zeal for ideological purity into New Right movement conservatism. At the 1964 Republican convention in San Francisco, where Goldwater accepted the party’s presidential nomination, the militancy of the Goldwater delegates alarmed mainstream Republicans. “What has been really frightening here is not the tactics, but the tacticians. They are a new breed,” wrote New Yorker political analyst Richard Rovere. “The spirit of compromise and accommodation was wholly alien to them…. They came for a total ideological victory and the total destruction of their critics.” To those who accused Goldwater of ideological extremism, Goldwater retorted, “Extremism in the defense of liberty is no vice…. Moderation in the pursuit of justice is no virtue.” That memorable battle cry became a mantra of the New Right.

  In the general election campaign, Goldwater’s New Right rhetoric did not go over well with voters. He tried to downplay his pet issues like privatizing Social Security, expanding the Vietnam War, and opposing federal enforcement of civil rights, but an image of rampant extremism had been fixed in voters’ minds by the GOP convention. Johnson won in a landslide—61 percent of the popular vote to Goldwater’s 38.5 percent. But to Goldwater crusaders, being right was more important than winning. Staying true to principle trumped victory. The Goldwater legions vowed to fight another day, and with good reason. The finale of the Goldwater campaign was an electrifying half-hour anti-Communist, anti-government speech on national television by Ronald Reagan that immediately established the then fading fifty-three-year-old actor as America’s most compelling new right-wing politician.

  Paul Weyrich:

  Building the Right-Wing Network

  By the time Reagan ran for the presidency in 1980, a New Right apparatus was in place—a core leadership group, a bevy of think tanks, and a formidable network of organizations with their own political action committee and direct-mail fund-raising machine.

  Paul Weyrich, a former Goldwater campaign volunteer, was the mastermind of the right-wing network. Weyrich, who spearheaded several right-wing organizations, was a one-man brain trust, constantly dreaming up ideas. He coined the terms New Right and Moral Majority. As the New Right trailblazer, he organized others for the mutiny against the Republican Establishment.

  Weyrich was an unlikely looking revolutionary—a baby-faced Roman Catholic from Wisconsin in his midforties. But looks were deceiving. I remember watching him in action, suddenly seeing Weyrich as an American in a gray flannel suit and gold-rimmed spectacles who could match the ideological fervor and political skill of any Lenin in the world. He was a born crusader, a leader with a fertile mind, political passion, steely discipline, and contempt for compromise.

  Weyrich strategized on a grand canvas. He understood that a revolution needed a department of propaganda, and he founded National Empowerment Television, a New Right channel. He saw Congress as the key to power and established the Committee for the Survival of a Free Congress, and he raised seed money from conservative business leaders like Joseph Coors of Coors Brewing Company to help elect true believers. He helped gear up the New Right for ideological battle by persuading Joe Coors and Richard Mellon Scaife, heir to the Mellon fortune, to put up millions to found the Heritage Foundation, a right-wing think tank, in 1973. Soon, other right-wing think tanks such the Cato Institute and American Enterprise Institute blossomed, funded by conservative foundations, corporations, and wealthy individuals such as David and Charles Koch of Wichita, Kansas, who poured more than $14 million into conservative think tanks.

  Weyrich was also instrumental in drawing Jerry Falwell’s Moral Majority, Pat Robertson’s Christian Coalition, and other fundamentalist groups into the New Right political movement. Weyrich not only shared the religious faith and family values of social conservatives, but he understood the power of televangelists to mobilize the anger of born-again Protestants and traditional Roman Catholics against legalized abortion, women’s rights, and the banning of prayer in schools. Their agenda was far different from Corporate America’s, but We
yrich found ways to bridge the gap and, in Reagan’s comforting phrase, bring them all under “one big tent.”

  Reagan Disappoints the Hard-Core Right

  With Reagan’s election in 1980, the New Right activists thought they had reached the Promised Land. In his campaign, Reagan had spoken contemptuously about government and limned his memorable refrain: “Government is not the solution; government is the problem.” He had ridiculed the Environmental Protection Agency and the Occupational Safety and Health Administration with stories about their bedeviling business with excessive regulation. He had vowed to abolish entire cabinet departments.

  But in office, Reagan disappointed the hard-core Right. He never came close to fulfilling his promise to kill several agencies. Instead of cutting cabinet departments, Reagan actually added one—the Department of Veterans Affairs. Paul Weyrich and the New Right were alarmed when Reagan chose mainstream Republicans for his cabinet and staff—especially White House chief of staff James A. Baker III, who had run Gerald Ford’s presidential campaign against Reagan in 1976. Later, Weyrich went to see Baker to try to stop Reagan’s nomination of Sandra Day O’Connor to the Supreme Court, on grounds that she was not a conservative true believer. But he failed.

  Reagan did please the New Right, however, by turning Republican economic orthodoxy on its head. He delivered tax cuts—individual tax cuts, corporate tax cuts, and capital gains tax cuts—even as he was sharply boosting military spending. That combination generated a meteoric rise in the federal budget deficit. And it marked a philosophical turning point for the Republican Party.