State of the Dream 2011

State of the Dream 2011: Austerity for Whom? from United for a Fair Economy on Vimeo.

Executive Summary

As a new wave of elected officials are sworn into office, many are vowing to make “austerity” a top priority for 2011. Austerity is described by Congressional Republicans as “tightening the belt” of government. In concrete terms, this means reducing public investments, cutting public benefits and rolling back government services. In this report, we ask: under such an austerity plan, who wins and who loses?

In 2009, months after President Obama was sworn in as the nation’s first African American president, the Tea Party stormed onto the political scene. With the financial backing of the Koch brothers, the movement gained energy and momentum through 2010, helping the Republican Party seize the House of Representatives. While the Tea Party’s energy may be new, its policies are not. If implemented, they will continue a thirty-year trend that began in the 1970s when a political backlash began to widen the economic divide and retard America’s progress toward racial equality.

After Blacks made significant economic gains in the 1950s and 1960s, progress began to stall in the 1970s. This trend is evident in a new time-series analysis of income data provided in this report. Four decades after the Civil Rights movement, Blacks still earn only 57 cents and Latinos earn 59 cents for each dollar of White median family income. The contrast is even starker for net wealth; that is, the total value of investments, savings, homes and other property minus any debt. Blacks hold only 10 cents of net wealth and Latinos hold 12 cents for every dollar that Whites hold.

Closing this vast economic divide was a core objective of Dr. Martin Luther King, Jr. and his supporters in the final years of his life. But the agenda of the Congressional Republicans today and their Tea Party allies threatens to take the country in the opposite direction. Behind the Republican agenda is a sinister logic. First, they use tax cuts to starve the federal government. Then they point to the deficits that their tax cuts helped create and claim that we cannot afford the programs most Americans need.

The GOP austerity program will ratchet down the standard of living for all working Americans, and ratchet up the racial economic divide.

  • While the unemployment rate for Blacks and Latinos remains at Depression levels, Republicans consistently block meaningful job creation proposals. The official unemployment rate is 15.8 percent among Blacks and 13 percent among Latinos as of December 2010. The White unemployment rate is 8.5 percent.  Including discouraged and under-employed workers would push these unemployment numbers up significantly. Despite these facts, the GOP’s Congressional leadership has consistently opposed broad-based stimulus and public job creation programs that have the best projected economic returns.  While their stance hurts millions of unemployed and under-employed Americans, they drag down Black and Latino workers the farthest and fastest.
  • With fewer assets to fall back on in hard times, Black and Latino families rely more heavily on unemployment insurance, Social Security and public assistance in times of need. For example, a new analysis shows that well over half of older Blacks (59.1 percent) and Latinos (64.8 percent) depend on Social Security for more than 80 percent of their family income, as compared to only 46 percent of Whites.  Republican opposition to these programs pushes people of color who are struggling — and other low-wealth households — further down the economic ladder.
  • Blacks will be disproportionately affected by the attack on public sector workers. New analysis in this report shows Blacks are 30 percent more likely than the overall workforce to work in public sector jobs as teachers, social workers, bus drivers, public health inspectors and other valuable roles, and they are 70 percent as likely to work for the federal government.  Public sector jobs have also provided Black and Latino workers better opportunities for professional advancement. The GOP hostility toward government and government employees will, if translated into policy, have a devastating effect on Black and Latino workers, while eroding our nation’s capacity to carry out the important work of the public sector.
  • Republican tax breaks disproportionately flow into the hands of high-income and high-wealth Whites. The recent income tax extension heavily favors Whites, who are three times as likely as Blacks and 4.6 times as likely as Latinos to have annual incomes in excess of $250,000, according to original analysis in this report. In the short term, the extension of Bush-era income tax cuts for households earning $250,000 or more per year deprives the federal government of the necessary revenue to create jobs and revive the economy. In the longer term, these cuts will do even greater harm by widening racial income and wealth divides.
  • The Republican tax cut agenda rewards wealth for those who already have it, and limits opportunity for those who do not. Recent efforts to weaken the estate tax will help to ensure that the wealth inequalities of generations past are carried forward indefinitely. Additionally, the preferential treatment of capital gains and dividend income further exacerbates the racial wealth divide by rewarding wealthy Whites with dramatically lower tax rates. Original analysis provided in this report shows that Blacks earn only 13 cents and Latinos earn eight cents for every dollar that Whites receive in dividend income. Similarly, Blacks have 12 cents and Latinos have 10 cents of unrealized capital gains for each dollar that Whites have.

This report starts in Memphis on the eve of Dr. Martin Luther King’s death. It builds on King’s call for economic equality in a “second phase” of the Black Freedom Movement. Section 1 explains why progress has stalled in recent decades, opening the door for a new era of growing inequality. Section 2 looks briefly at how inequality has played out within the Black and Latino communities at the point where class intersects with race. Section 3 analyzes the racial impact of Congressional Republicans’ economic agenda, documenting how the proposed policies will retard progress toward closing the racial economic divide. Section 4 explores positive policy directions that can begin to close the racial wealth divide and promote economic justice for all Americans.

While this report focuses on the negative policy implications of the GOP agenda on Blacks and Latinos, we also hold out hope for greater progress in the years ahead. History has demonstrated — as with the great Civil Rights victories of the 1960s — that when Americans come together across lines of race and class to forge a new and equitable path, we can achieve positive and lasting change. More than 40 years after Dr. King was assassinated, we must continue the cause of his life and ensure that his belief that “the arc of the moral universe is long, but it bends toward justice” is proven true.

Download a complete copy of State of the Dream 2011: Austerity for Whom? here.