The Radically Different Visions of Tax-Eaters Versus Taxpayers

In an earlier posting, I introduced a book entitled The New New Left: How American Politics Works Today by Steven Malanga and a review of the book in the Claremont Review of Books. The core theme of the book was described by one reviewer as "American politics is not about [political] parties, it is about special interest group against special interest group."

Expanding on that comment, here are some excerpts from the Introduction: Tax Eaters versus Taxpayers, where the author writes:

...A new political dynamic has slowly been emerging over the past forty years, a face-off between those who benefit from an expanding government and those who must pay for it - the tax-eaters versus the taxpayers...coalitions of public employees, staffers at publicy funded social-services programs, and the recipients of government aid have emerged as effective new political forces...

This increasingly powerful public-sector movement results from the joining together of two originally distinct forces. First are the government-employee unions...

For years, government employees had no right to organize, on the grounds that there was no competition in the delivery of government services and that therefore public unions could hold cities and states hostage by going on strike and denying essential services to the public...that began to change in the mid-1950's...

...In 1960 the American Federation of Teachers mapped out a controversial strategy to win collective bargaining rights for teachers around the country, using...labor-friendly New York City as a test case...

...most of the warnings voiced about public-employee unions in those tumultuous years have proven accurate. Political leaders and labor experts predicted that government-employee unions would use their power over public services to win contracts with work rules far more generous and undemanding than in the private sector; and that without the restraints on salaries and benefits that the free marketplace imposes on private firms, unions would win increasingly meaty compensation packages that would be impossible to restrain or to roll back...

But what critics did not anticipate was how far public-employee unions would move beyond collective bargaining to inject themselves into the electoral and legislative processes...

Reinforcing the public-employee unions in the powerful new coalition of tax-eaters are the social-services groups created by the War on Poverty. Nominally private, they are sustained by and organized around public funding...This flood of money transformed many formerly private welfare organizations into government contractors, and their employees into quasi-public workers. It also spurred the creation of vast new networks of such organizations...

This social-services funding vastly expanded the publicly supported workforce almost overnight...

Almost from the War on Poverty's inception, these social-services employees and their clients began to show themselves as a powerful political force...

The gradual government takeover...has transformed...institutions, executives, and workers into unremitting lobbyists for ever greater public monies and expanding programs, and tireless foes of efforts to restrain costs...

The electoral activism of this New New Left coalition of tax eaters - public-employee unions, hospitals and healthcare -worker unions, and social-services agencies - has reshaped the politics of many cities. As the country's national political scene has edged rightward, thwarting their ambitions in Washington, these groups have turned their attention to urban America, where they still have the power to influence public policy...

Increasingly in cities around the country, the road to electoral success passes through the public-employee/health/social-services sector...

One reason why these politicians have succeeded electorally is that those who work in the tax-eater sector clearly have different voting priorities from private-sector workers or business owners...

....public-sector workers, who realize they are going to the polls to elect their bosses, make sure to remember to vote...

With so much of their economic future at stake in elections, the tax eaters have emerged as the new infantry of political campaigns, replacing the ward captains and district leaders of old-time political clubs...

Although it started out as a romantic but wrongheaded idea, the War on Poverty was the child of idealists who really believed that a benevolent, paternalistic government could offer solutions that America's private economy couldn't provide for the poor. But the most cherished ideals and programs of the movement have turned out to demonstrably wrong...

By the mid-1990's, Americans were eager for reform, and they got it...

In the face of such results, the new urban left has emerged as an increasingly cynical coalition, ever more focused on goals that benefit its members and their allies, even thought it retains the jargon of "social justice."...

Regardless of how transparent its aims now seem, this new coalition will remain formidable because the tax-eater sector is now so large in many cities and states that it can easily thwart reforms aimed at undermining its programs. With much of the legislative agenda merely concerned with expanding programs and enacting laws that add to its own numbers, the New New Left may be in the ascendancy for a long time to come.

A recent editorial in the Wall Street Journal entitled GM, France and Albany: What the declines of all three have in common (available for a fee) states:

At first glance, they seem to have little in common. But the riots in France over labor reform, the slow-motion suicide of General Motors, and the continuing decline of the New York economy all share one defining trait: entrenched and unchangeable union power.

These columns have always favored the right to collectively bargain…we should [not] fail to appreciate the consequences when unions become entrenched inside any organization…unions do not provide individual job or income security. On the contrary, they undermine security by contributing to broader business and economic decline.

At the national level, the French example is clear enough. While the French private sector is less unionized than America's, it must cope with mandated work rules that make it all but impossible to fire someone; so naturally companies are also reluctant to hire. The jobless rate is double America's, while youth unemployment is 23%. More significant is that the political clout of public-sector unions has blocked all but minor changes in these rules. Public-sector workers account for more than a quarter of the entire French work force (6.4 million of out 24.6 million), and their salaries and pensions made up 45% of the entire state budget as recently as 2003.

The current French protests are in response to a modest change that would allow employers to fire people under age 26 more easily. So entrenched has the politics of union entitlement become in France that even at the onset of their careers these young protesters are demanding security over opportunity. In the global economy, this means they will end up with less of both.

France remains a wealthy country, and its economic decline can be masked for a time as it lives off accumulated capital. But already the promises that its unions have extracted from the government seem unlikely to be kept. A growth rate of between 1% and 2% a year won't be enough to finance the pensions and health care of an aging nation. And facing up to those facts will require an increasingly painful political reckoning.

Here in the U.S., the same burden is slowly crippling New York…Power in the state capital of Albany is shared by Republicans and Democrats. But both parties bow before the public-sector unions, especially the teachers, and the health-care workers…

…New York's Medicaid costs are higher than those of Texas and Florida combined; a health-care insurance premium for a young family of four is roughly six times what it is across the border in Connecticut; and high-deductible health-savings accounts that can help the self-employed afford insurance can't even be offered in the state…

Another union-driven business cost is workers' compensation, and in New York the average cost per claim is second highest in the nation (after Louisiana) and 72% higher than the national average…

…upstate [New York] is a different story, with jobs and young people fleeing to better business climes. New York manufacturing employment fell by 41% between 1990 and 2005, or double the national rate.

Even Eliot Spitzer recently referred to upstate New York as "Appalachia." Alas, the Attorney General shows no sign of understanding that the heart of the problem lies in Albany…

As for GM, its management mistakes are legion and its weak product line well-known. But the root of its problem is that it long ago became a corporate version of the welfare state, with the same entrenched union interests…the size of its market dominance going back to its heyday 40 years ago allowed its managers to avoid confronting its uncompetitive wages, benefits and work rules even as they saw Toyota and Honda gaining in the rearview mirror.

In retrospect, GM management should have provoked a union showdown. Yet only a very brave CEO would have been willing to risk a potentially catastrophic strike on his watch for the sake of making the company more competitive after he retired. In any case, would the United Auto Workers really have budged? In 1998, young executive and future CEO Rick Wagoner endured a 54-day UAW wildcat strike at two plants in Flint, Michigan, after GM had tried to change some production rules. The strike shut down most GM production in North America and cost the company some $2 billion. In the end GM caved and the UAW escaped, having made virtually no concessions.

Even now at auto-parts maker Delphi--which is already in Chapter 11--the UAW is declaring it will take a strike that could destroy both Delphi and GM rather than agree to Delphi's proposed job cuts and work changes. As in France and New York, these union leaders would rather sink the company than make concessions that would reduce their own power.

This pattern has repeated itself again and again--in the steel and textile industries attacked by foreign competition, or the unionized grocery chains routed by Wal-Mart. The union answer has rarely been to work with a company to allow more job flexibility to become more competitive. The answer has typically been to seek a ruinous strike or lobby for political intervention that might stave off disaster for at best a few more years.

We recount all this because, even amid GM's decline and France's economic turmoil, most of America's liberal elites refuse to draw the right lesson. They cling to the belief that if only the Democrats can retake Congress, or the union movement can once again organize more of the American labor force, the old economy of union-backed job security and egalité will return. Or, worse, they propose seceding from global competition via protectionism. It is all a delusion. Down that road lies France--a nice place to vacation, but you wouldn't want to work there.

This is the central problem the liberal wing of the Democratic Party faces as it plots what to do if it does regain power this year, or in 2008…to govern for the long haul they need better ideas than trade barriers, a tax hike to increase the size of government, or the defense of the entitlement status quo.

They need to champion reforms to help individual workers better secure their own futures in a competitive global economy, rather than relying on the false hope of restoring the age of Walter Reuther. They need to promote portable pensions, cheaper health insurance and education choice. So far all we see is Jacques Chirac in American drag.