Down the Rabbit Hole of Supply Side Economics:  The Death of the Virtual Economy and the Middle Clas

John M. Kelley

Posted Oct 7, 2005      •Permalink      • Printer-Friendly Version
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Down the Rabbit Hole of Supply Side Economics:  The Death of the Virtual Economy and the Middle Class

By John M. Kelley

While politicians on both sides of the aisle refuse to talk about the war on the working class by the Bush administration, the increasing cliff edge disparity of wealth distribution in America is creeping precariously closer for the middle class.  The grinding suffocation of poverty, always clear to the people on the bottom of our economy, is coming into view for a lot of folks who never suspected it would happen to them.  Long sold a bill of goods that the poor were victims of their own bad judgment, middle class whites idsplaced by economic policies will soon be acutely aware of the personal impact of economic policy.  Changes in several measurements reveal what many poor people have known for a long time, that there are severe class divides with high fences in between. 

Rapper, Kanye was wrong when he said this President doesn?t care about black people, he doesn?t care about the poor or middle class of any color.  This is not a matter of being overlooked it is a purposeful policy.  The administration?s policy in dealing with Hurricane Katrina is a perfect example.  First Bush puts incompetent contributor cronies in charge of a vital government agency, robs its budget to expand its police state controls and then fails miserably at execution of its mission.  After the disaster, it blames others, exploits the tragedy by giving no bid, high profit handouts to campaign contributors, erasing regulations, cutting requirements to pay the prevailing wage and allowing contractors a free hand to hire illegal aliens. To pay for what has become the Katrina Campaign Payback Machine, he has sends the bill to poor people by proposing cutting food stamps, Medicaid, Medicare, higher education and teacher preparation. 

But one thing the President does like is welfare.  The oil companies awash in profits just received $14 billion in new tax breaks and he has just promised more along with loosened regulations to build more efineries.  But that is just the beginning, there is the $125 billion that is being given in corporate tax abatements, price supports, tax shelters and subsidies, $44 billion to the space industry for a repeat trip to the moon, $8 billion for the unnecessary and unworkable star wars program. Bush?s sympathy is virtually boundless for the military industrial complex and he threatens to veto the imperial war budget of $480 billion dollars (more then the next 38 countries combined) because he says it isn?t enough.  Killing people is a much higher priority than saving them.

Even more unbelievable, he still wants to move ahead with more tax cuts for the rich who are hardly carrying a crushing tax burden.  Tax revenue from corporations fell 16% between 1995-2003 to only 7.4% of the total federal income.  While corporate tax rates are theoretically 35%, the General Accounting Office reports that 45% of corporations worth more then 250 million dollars paid no taxes from 1995-2003.  The ten companies with the highest profits paid on average rate of 8.9%.  Not satisfied with this the Bush administration has proposed that 350 billion dollars of profits hidden offshore be allowed back into the country at a special tax rate of 5.25%

Wealthy individuals are also doing well under the Bush tax cut scheme.  While people in the bottom 20% of taxpayers (under $13,478/year) will save an annual average of $23 and the median taxpayer saves about $800 dollars a year, those with a million dollars of aannual income saves $32,000, the top .1 of one percent $195,762 and the top 400 taxpayers $8.3 million dollars every year. 

After they accumulate that money, Bush wants to make sure they keep it for generations by getting rid of the estate tax.  That creates financial dynasties, so people like him, will never have to compete with working people to retain there position in life.  If that wasn?t bad enough federal funds to state and local government that help community infrastructure have been cut causing an increased burden in fees, property, sales and other taxes that fall disproportionately on the middle class and poor, sually more then wiping out any income tax reduction.

The chasm between rich and poor is widening by the day.  Real income for working families declined 4.8% ($2576) while it increased 1.7% (that?s of a much bigger income) for the wealthy since 2000.  Asset ownership is very revealing with the top 5% owning 60% of all assets in the country while the bottom 40% shares 1%.  The ratio of CEO to worker pay has increased from 301-1 to 431-1 since 1990.  While 77% of the poorest performing wealthy kids go to college, only 78% of the highest performing poor kids go. 

Drowning in debt, 5.4 million working class families fell below the poverty level of $19,000 for a family of four in the last four years.  That standard hasn?t been adjusted in so long that it is estimated to be only half of what is needed to meet basic needs.  That
would mean that one third of the children in the country are being raised in homes where their parents can?t provide adequate tools to succeed in life.  One good indicator of the truth of this argument is that 45.8 million people don?t have insurance in addition
to the13.3 million children and elderly that are covered by Medicaid and Medicare. 

When it comes to tax policy for the poor it is a different story.  The much heralded child tax credit is only collected by a quarter of the poor; the other 3/4s don?t make enough to even get that.  Then there are those living off the gravy train of welfare, which averages $193 dollars per family per month in Texas, Bush?s role model for the country.  The number of poor has been growing every year since Bush took office.  We now have almost twice as many people living below the poverty line then the total population of Australia. 

There are tax subsidies for the middle class but they too benefit corporations as much as taxpayers.  The $140 billion in healthcare tax subsidies give a tax write off to employers, $70-80 billion in pension plan tax subsidies boost financial institution revenues, $61 in mortgage interest deductions support banks and mortgage houses. As the current recession deepens and more fall from the middle class they will lose the ability to pay to take advantage of these tax breaks.

In the past bankruptcy (the majority because of the loss of a spouse, job or serious health problem) has been able to save middle class economic casualties from permanent banishment. Not any more, in addition to higher filing costs, there will be higher attorneys fees, ?education? fees and stiffer documentation requirements. Many won?t even have the money to file, and many of those who do will find themselves bound in a state of perpetual bondage for many years.  Small usinesses are specifically bound by these rules as well, while large corporations will operate pretty much as in the past.

After middle class citizens fall from grace they will discover the feeling a lot of poor people already have, the boot on the neck that keeps you down.  It costs a lot of money to be poor.  Paying to get your check cashed or your bills paid, buying in small quantities at higher prices, living in drafty houses, having a beater car if you have one at all, getting
stopped and fined by the cops more often, having to rent to own at 450% interest, being forced to take out a payday loan at 750% interest, not being able to afford a dentist or doctor and missing more work, if you can find a job, because of it.  The poor pay more for just about everything. 

Once down most people stay there, the American myth of lifting my ones own bootstraps is a lie.  The poor are disproportionately being killed in our war of global adventurism. Here at home poor people go to jail more often, suffer more health problems and die sooner.  Class mobility is another myth. During the go-go years of 1988-98 when poverty decreased every year, only 2.5% from the bottom fifth made it to the middle fifth of the income range. Now that is getting worse every year. 

The promise of Jude Wanniski?s supply side economics is producing the destruction of the middle class and the grinding down of the poor in America.  The theory is that if you cut taxes and give more money to the rich they will invest it creating more jobs.  The problem is that is exactly what they are doing, but the jobs are in Honduras,  Bangladesh, China and India where that capital will produce a bigger profit margin by exploiting even poorer people. 

The extraction of capital from the country by the administration on behalf of their corporate contributors reveals the chop shop mentality of a hostile takeover.  George Bush, Dick Cheney and Alan Greenspan have stolen the car (remember the election),
disassembled it and are selling off the parts. 

Since 9/11 the only thing that has kept the virtual economy of America alive is massive tax cuts, robbery of the public treasury surpluses and leaving IOUs, low interest rates enticing the middle class to mortgage their assets to maintain their lifestyle and a trade deficit that French author Emmanuel Todd calls a form of foreign tribute. Now with skyrocketing energy costs and a popping housing bubble, an economic plunge and massive class displacement is about to occur. Poor people have known for a long time what Supply Side Economics means, now a whole lot of middle class people are about to find out as well.  When they do they might have some serious rethinking to do about class.  Let the revolution begin.

John M. Kelley is a teacher, philosopher, writer, artist, political activist, singer of ballads, rebellious Irishman and agent for change who worries daily about the world he is leaving for his grandchildren.  His blog is at

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