As President Barack Obama revealed his new economic plans during last Tuesday’s State of the Union address, the cries of socialism inevitably rose on my Facebook feed. After reading the speech, I was reminded of an old life lesson: no one rides for free.
While the president discussed everything from foreign policy to education, the big focus of his address was on unrolling new economic plans for America. This new strategy focused on a few key points involving tax breaks for the middle class, tax hikes for the wealthy, new labor benefits, a higher minimum wage and two years free community college. For the past few years, people considered these ideas as “freebies” given out by the federal government. Truthfully, that is a very short-term view of this type of policy which ignores the fact that there are certain unspoken expectations to any favor being offered.
Middle class economics, as Obama calls it, comes with a few unmentioned purse strings attached. Reduced taxes and new write-offs are done in order to develop a feeling of financial stability for the working class that was stolen during the 2008 recession. As many families lost their jobs and savings, tightened budgets meant less frivolous spending. In a capitalist-based economy when consumers don’t spend, then profits, companies and workers take massive blows.
“To give working families a fair shot, we still need more employers to see beyond next quarter’s earnings and recognize that investing in their workforce is in their company’s long-term interest,” Obama said.
An aspect not discussed on increasing education and labor protections is that it encourages more people to go to work. The yearly cost of two children in a daycare center is more than the cost of the median rent for a year in every state, according to a study done by Child Care Aware. By offering tax breaks, it encourages families to have two working parents, meaning more financial security and more income to tax. Offering free education and programs like Biden’s workforce training gives Americans who have been struggling for years new opportunities.
“Tonight, I’m also asking more businesses to follow the lead of companies like CVS and UPS, and offer more educational benefits and paid apprenticeships — opportunities that give workers the chance to earn higher-paying jobs even if they don’t have a higher education,” Obama said.
Basic mathematics tells us that it is impossible to work 40-hours a week on the current minimum wage and live above the national poverty line. After food and rent comes living expenses, leaving very little after to a splurge on a new pair of shoes. When a trip to Target seems out of reach, it also affects more than four million Americans who are employed by the retail industry, according to the Bureau of Labor Statistics. Those little trips to the mall or a restaurant fuel private industry and states, like Florida, that impose a sales tax. Everything you spend is revenue, which is why the government wants you to feel able to buy more.
“And to everyone in this Congress who still refuses to raise the minimum wage, I say this: If you truly believe you could work full-time and support a family on less than $15,000 a year, try it,” Obama said.
President Obama claims that 17 of the 50 states raised minimum wages in his first interview after the speech with Hank Green. Some of the benefits of increased minimum wages are not only more money in the bank accounts of Americans, but also less turnover and training costs for companies as more workers are incentivized to stay in their positions. This was a concept implemented by the famous businessman Henry Ford, who paid twice the minimum wage in 1914 in order to allow his laborers to purchase the Ford product.
It is as simple as this: the government will help you put more back in your pocket so you can go out and buy more, therefore improving our economy.
Increasing taxes on the wealthy is not a permanent solution, but a Band-Aid to cover the real problem of funding this new fiscal policy. With all the loopholes in the tax code, the entire thing should be re-evaluated and rewritten, a fact Republican Joni Ernst agreed with in her response to Obama’s address. With different agendas at heart, both parties agree Uncle Sam wants Americans to pay their taxes.
“Republicans think tax filing should be easier for you, not just the well-connected. So let’s iron out loopholes to lower rates — and create jobs, not pay for more government spending,” said Ernst in her GOP rebuttal.
Early in 2014 there was a large controversy regarding a study published revealing that 26 of America’s largest corporations paid no taxes, including big names like Verizon and Boeing. Now this was released by an independent activist group, Citizens for Tax Justice, but it isn’t the first time the issue has been brought about. Unfortunately, the lack of money being brought in to government revenue is completely legal due to legislation that has historically been pushed for by lobbyists and special interest groups that hold the purse strings.
“As Americans, we don’t mind paying our fair share of taxes as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight,” Obama said.
Democrats are hoping to use these tax changes to fund this new economic plan, but I highly doubt that will manage to pass a Republican-dominated Senate without serious compromises along the way. In theory, middle-class economics will pay for itself over time. The wealthy tax increase will have a very short lifespan even if it does manage to succeed through the Senate floor.
If this economic plan goes forward, it will go forward in a modified capacity with compromises on corporate tax incentives to help develop labor protections and create American jobs. Once consumer spending increases and expands the private market, tax cuts for the wealthy will once again pass through Congress.
So what happens in the long term?
“If America cannot get its act together on the jobs front, its many other serious wounds will not heal,” wrote Bob Herbert, author of Losing Our Way.
Unemployment and poor job opportunities aren’t the only problems facing us today but as Herbert points out in his book, the only way to fix this nation is through a strong middle class. A representative government has long since fallen to special interest groups and lobbyists to create policies that do nothing for the people. Right now, we may have to spend the money to get back to solid ground.
Frankly, unless anyone else can come up with a bipartisan plan to help decrease the wage gap and stabilize the working class, Obama’s plan may be the only option to move the American economy back from barely surviving to thriving.
Doha Madani can be reached at email@example.com