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How to Save the GOP

By       Message Robert Parry     Permalink
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The crisis reached a critical point in the last two years of George W. Bush's presidency when the ability of middle-class families to borrow against their home equity was devastated by the financial crash, massive layoffs and a drastic drop in home prices.

That forced millions of American consumers to forego purchases and left manufacturers with little incentive to ramp up production. Instead, companies kept trillions of dollars on the sidelines, seeing no reason to send their cash into the game.

Yet, what does Romney advocate as a solution? He wants another 20 percent tax cut aimed primarily at the wealthy. But non-partisan budget experts say the Romney plan would require higher taxes on middle-class families. In other words, Romney is likely to depress consumer spending even more.

Another mistaken judgment is spelled out in his campaign book, No Apology, where he describes the key challenge confronting the U.S. economy as "productivity," i.e., the ability to produce more goods per hour of work.

He wrote: "Productivity is so central a concept, so crucial an ingredient to national well-being, that a focus on productivity should be a constant in the media and in the minds of citizens."

But that's not entirely true. A healthy economy depends on a mix of factors, including a strong middle class that can afford to buy items being manufactured. If an economy raises productive, it will still stagnate if people can't afford to buy the products.

Even the most efficient factory that makes something that no one can afford will soon go out of business. That was the insight of car manufacturer Henry Ford who insisted on paying his assembly-line workers enough so they could buy his cars. On a macro level, the same is true for countries. Productivity without demand is a recipe for failure.

In the Great Depression, the federal government expanded on Henry Ford's insight with New Deal programs to help the unemployed get back on their feet. After World War II, other initiatives were designed to benefit returning war veterans and to build the country.

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In essence, the Great American Middle Class was a creation of the federal government, through programs like the GI Bill, laws to protect unions, and major investments in transportation, power generation and science. That era's Republicans might have been more cautious about government spending, but many projects had bipartisan support.

This golden era of the U.S. economy occurred while the top marginal tax rate for the wealthy ranged from 70 percent to as high as 91 percent. During the Eisenhower administration, the rich got to keep less than 10 percent of their top tranche of income.

This tax money was then "redistributed" to make America stronger and more prosperous. In the process, many businesses succeeded.

While the 70 to 91 percent top marginal tax rates might be excessive in today's more fluid world where the rich can offshore themselves as well as their money, the excessive tax-cutting that Republicans have pushed since Ronald Reagan's presidency -- now down to 15 percent for capital gains on investments -- hasn't achieved a healthy economy. Quite the opposite.

A Needed Pragmatism

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So, the pragmatic approach would be to look at this history and raise taxes on the rich to some reasonable level -- President Bill Clinton set the top rate at 39.6 percent -- while investing some of that money in projects that can hire the unemployed and give the United States, once again, a world-class infrastructure.

In other words, use the tax structure to transfer some super-profits from the U.S. owners of foreign factories and from businessmen who have profited from government-backed technology to create middle-class jobs for Americans, who can then buy stuff.

If done wisely -- by putting people to work on building infrastructure, advancing research, and educating the U.S. population -- this "redistribution" can have multiple benefits, not just expanding the middle class but helping new businesses prosper.

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Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Secrecy & Privilege: Rise of the Bush Dynasty from Watergate to Iraq, can be ordered at It's also available at

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