In part two of this program, Bill Moyers provides a powerful examination of the forces that have contributed to the dismantling of the American economy. The program is based on the research of Pulitzer Prize-winning journalists Donald L. Barlett and James B. Steele.
MACAULEY CULKIN: [“Home Alone”] I made my family disappear!
BILL MOYERS: The blockbuster movie Home Alone was distributed by 20th Century-Fox, which is owned by an Australian media conglomerate.
ANNOUNCER: This is Jeopardy!
BILL MOYERS: The game show you watch faithfully every evening, Jeopardy!, is produced by Columbia Pictures Entertainment, which is owned by Japan’s Sony Corporation.
ACTOR: [TV commercial] What d’ya say? What d’ya say?
BILL MOYERS: Even your favorite fast food hamburger joint, Burger King, is owned by Britain’s Grand Metropolitan.
ACTOR: [Burger King commercial] It’s a beautiful thing!
ACTOR: Introducing Tropicana Pure Tropics.
BILL MOYERS: The Tropicana orange juice on your breakfast table is made by the Tropicana company, which is owned by Canada’s Seagram Company. And your favorite vacation golf course, Pebble Beach, is owned by a Japanese investor. Once all were American-owned. Tonight, part II of “America: What Went Wrong.”
I’m Bill Moyers. In the global economy, corporations and financiers move business around the world as if national boundaries didn’t exist. It’s part of the new world order, and there are trade-offs. American firms gain from access to global markets and American workers benefit from foreign investment in America.
But Americans can get hurt, too, especially when the rules of the game are not the same for everyone. The rules, regulations and laws written in Washington make it possible, for example, for a fugitive from justice to wreck American companies. They give lower tax rates to foreigners who buy and sell American businesses and they reward U.S. companies for moving their factories, jobs and investment dollars overseas. American taxpayers and workers are then left to pick up the pieces, casualties of the new world order.
President GEORGE BUSH: The strength of a democracy is not in bureaucracy. It is in the people and their communities. In everything we do, let us unleash the potential of our most precious resource, our citizens-our citizens themselves. We must return to families, communities, counties, cities, states and institutions of every kind, the power to chart their own destiny and the freedom and opportunity provided by strong economic growth. And that’s what America is all about.
BILL MOYERS: [voice-over] Those words of George Bush seemed a long way from reality to the people in Ravenswood, West Virginia. Listen to Diane Johnson.
DIANE JOHNSON: I’m angry. I’m angry at what they did to my husband. I’m angry at the things they say about him. And what really gets me is when newspaper articles come out and they call the steelworkers a lazy bunch of people who is just in there trying to make big money and do nothing, and it isn’t the truth. They forget to mention that we all took concessions in the 80’s. We all had our wages cut. And we adjusted and we went on and the plant was still profitable. They still put out more metal than they were even asked to put out. But nobody talks about that now.
BILL MOYERS: [voice-over] Diane Johnson, her husband Toby and son Joshua used to lead a normal life in the small, closely-knit town of Ravenswood. Toby had followed in his father’s footsteps and taken a job at the Kaiser Aluminum plant. He worked there 25 of his 43 years and was able to provide a good life for his family. All that ended in the 1980’s. The company changed hands three times. When it was purchased in 1989 in a leveraged buy-out and renamed the Ravenswood Aluminum Corporation, that’s when the big trouble started.
TOBY JOHNSON: Kaiser Aluminum, well, they had their faults, also. You know, you have problems anywhere you work, but not like we have had with Ravenswood Aluminum, since they took over. Kaiser was easier to get along with. It seemed like they listened to you more, to your problems, and tried to work things out.
BILL MOYERS: The money to purchase the company came from a mysterious source in Switzerland, from interests controlled by this man, Marc Rich. Rich is a member of Forbes magazine’s directory of the 400 wealthiest Americans. He is also a fugitive from the U.S. government. This is one of his homes in Switzerland, where he fled in 1983 to avoid the possibility of a trial.
MARC RICH: It’s public knowledge that these charges amount to 65 charges and if you add the maximum jail time to all the charges, you come to 325 years.
BILL MOYERS: It seems that he failed to pay taxes on profits from rigging the price of crude oil during the ’79-’80 energy shortage. Although he was a fugitive from justice, Marc Rich could still control the fate of people like Toby Johnson. While he skied on the slopes of St. Moritz, his aluminum company in Ravenswood was getting ready for contract negotiations with its workers.
They were unusual preparations, to say the least. Fences went up. Security guards were added, along with surveillance cameras.
REPORTER: Union workers at Ravenswood Aluminum are now manning the picket lines.
BILL MOYERS: Under Marc Rich, the company refused to bargain in good faith with its employees. Instead it locked them out.
REPORTER: When the zero hour passed and contract negotiations broke down, there were still people on the job inside the plant. The union workers say company officials asked them to leave. That’s why the steelworkers union is calling this a lock-out.
BILL MOYERS: [voice-over] As workers walked the picket line the company brought in other townspeople and out-of-towners to replace them. Ravenswood was bitterly divided into two warring camps, unions versus, as Toby calls them, “scabs.” The drama has even spilled into the schoolyards.
TOBY JOHNSON: My boy hasn’t got into any fights like that, but I think he has had some arguments, where these kids, that their dad’s working down there now, they’ll tease the union kids or say “My dad’s got a job and your dad never will be back.” You know, things like that. It’s bad.
DIANE JOHNSON: You know, Josh doesn’t talk very much about this. I don’t know what to say to him. I don’t – I worry about him. It’s as those he’s lost a complete set of grandparents.
BILL MOYERS: This lock-out has also divided families.
DIANE JOHNSON: Every time we walk up through here, I’m afraid your parents are going to come down the street.
BILL MOYERS: Toby hasn’t been to his parents’ house in over a year and they live two blocks away.
DIANE JOHNSON: I don’t know. I just hope we can get Josh to understand some of this stuff.
TOBY JOHNSON: Well, it’s hard for everybody to understand.
BILL MOYERS: His niece is married to a man who crossed the picket line.
TOBY JOHNSON: I talked to my dad and my mother about him still coming to their house and I told them how I felt about it. I didn’t like it. You know, I didn’t feel like that they should let somebody come to their house that’s stealing their own son’s job.
BILL MOYERS: Diane Johnson would like Marc Rich to leave the slopes of St. Moritz and visit Ravenswood.
DIANE JOHNSON: I really would like for him to come to one of these small towns to see the people whose lives he’s tearing apart. I want him to know that we’re real people, that we’re just not a number or a paycheck, that we have lives, that we have families and friends. But I honestly don’t know if a man like that – they put theirself up so above everything. They don’t consider that they are doing it to us.
TOBY JOHNSON: The anger is with me constantly. There’s a lot of times that I don’t show it, which you can ask my wife. Of course, I’ve been like that most of my life, to a certain extent, but now it’s a lot easier to lose control because you get to thinking about all this stuff and sometimes it gets too much, like what they’re doing, what they’re doing to us and the other people, the families, churches, schools, the community. It’s a disgrace.
BILL MOYERS: Last July the National Labor Relations Board charged the company with illegally locking out its employees. The case is now before an administrative judge and all that Toby, his best friend Ron and the rest of the workers can do is wait. Toby and Ron share their fears of mounting bills and looming mortgage payments, as well as their frustrations about having their lives put on hold. In spite of these hardships, they both feel their fight is important.
RON: When a fellow union brother turns on his union, it’s treason to me, you know?
TOBY JOHNSON: It is treason. Right.
We need everybody in America to take a look at this. Not if – it’s not just happening here. This is just one example of what’s happening all over the country. People need to wake up. They need to wake up and see what’s happening. Do they want to make minimum wage for the rest of their life with no retirement, no health benefits, no safety in the workplace? And that’s what it’s coming to and that’s what this company is trying to do to us.
DIANE JOHNSON: I feel like sometimes that the working people, while we’re busy trying to make a living and arguing over these things, that there’s this little group of people that are controlling us. It scares me that there’s these few rich people at the very, very top that is in power and in control. But it didn’t satisfy them that they were – had enough control. I think they’re trying to control us even more.
TOBY JOHNSON: Ravenswood was – I like to call it the ideal community of America. Everybody liked Ravenswood. We’d have people come here, like ministers, and when their time was up at the church, they didn’t want to leave. It was a nice town. Everybody was just close. You know, you knew everybody, more or less. It was just a happy town and it’s – I think it’s a pretty town. And now, since all this has happened, it’s kind of took some of the beauty away.
BILL MOYERS: The story of what happened in Ravenswood is part of a series that took The Philadelphia Inquirer two years to report. Pulitzer Prize winning journalists Donald Barlett and James Steele investigated and wrote the nine part series, called “America: What Went Wrong?” They’ve expanded the series into a just-released paperback book and are collaborating with us on this television adaptation of it.
James Steele, why did your reporting take you to Ravenswood?
JAMES STEELE, “Philadelphia Inquirer”: Ravenswood became for us almost a microcosm of so many of the plants and companies that we covered in the entire series. It was typical of those places which had been stable, dependable employers in their towns, but which in the last generation, particularly in the 1980’s, began to be subjected to so many changes. There were takeovers there in ’85, ’86 and then lastly in ’89, each time financed by debt. The interest deduction for corporate debt was the engine that drove each one of those purchases.
BILL MOYERS: Exactly how, Don, does Marc Rich figure in the Ravenswood story?
DONALD BARLETT, “Philadelphia Inquirer”: Rich really symbolizes what’s going on with this global economy. When we talked about the rule book, that collection of laws and regulations, when it comes to the global economy, there virtually are no laws and regulations. And the few that do exist really are there to protect the interests of the – of those with access to Washington, people like Marc Rich.
BILL MOYERS: So he didn’t do anything illegal.
DONALD BARLETT: No, no. There’s nothing, as far as we know. We turned up nothing illegal in connection with Ravenswood. However, he is under indictment and has been a fugitive from justice for nine years now.
BILL MOYERS: You mentioned his connection to Washington. What is that?
JAMES STEELE: Well, the best connection, I think we can say, is there’s – it’s obviously not a high priority of Washington to bring this man in. He lives quite openly in Switzerland, as we just saw from the film footage. When we called the FBI, curiously, to find out even if there was a wanted poster, the person we talked to wasn’t even sure he knew the name and he was definitely certain there wasn’t a poster. And then the last quote was the funniest of all. He says, “Is he wanted?”
BILL MOYERS: This is the Justice Department asking?
JAMES STEELE: This is the Justice Department asking us.
DONALD BARLETT: Of course, over these nine years he’s had dealings with the Treasury Department. He’s had contracts with the U.S. Mint worth more than $20 million. His companies have sold copper to the Mint.
BILL MOYERS: Even though he’s a fugitive?
DONALD BARLETT: Even though he’s a fugitive.
BILL MOYERS: He’s still selling copper to-
DONALD BARLETT: Copper to the U.S. Mint.
JAMES STEELE: Copper and nickel to the U.S. Mint.
DONALD BARLETT: He also had more than $100 million worth of contracts with the U.S. Department of Agriculture through the subsidized agricultural products programs, in which he sold wheat and other products overseas. He’s had dealings with the Department of the Interior in the Caribbean, all during a time when he’s been under indictment and a fugitive.
BILL MOYERS: And there’s nothing inherently wrong in foreigners owning American businesses. We certainly own a lot of businesses abroad, so what is the issue, as you define it?
DONALD BARLETT: We – in the two years we spent looking at this, we saw no evidence of, as you indicated, of anything really untoward in foreign ownership, in foreign investment. The problem is that the people in Washington have given enormous tax breaks to the foreign investors and the foreign companies investing in the United States and these breaks are coming at the expense of ordinary taxpayers out there who’ve got to make up that difference.
JAMES STEELE: Well, we found out when we looked at I.R.S. data, if you look at the tax returns of Japanese, German and other corporations in foreign lands, you see that their deductions are much higher than similar kinds of deductions filed by American corporations. The net effect of that is they pay lower taxes on their earnings in this country and the net result of that is that the individual in this country has to pick up the ultimate share.
BILL MOYERS: Let’s take a look at how Barlett and Steele reported on this very issue.
From 1984 to 1987, revenue of foreign-controlled companies in the United States rose 50 percent. Their taxes went up 2 percent. Japanese controlled companies increased their revenues 64 percent, going from $113 billion to $185 billion, yet their federal income taxes went down, falling 14 per-cent from $1.1 billion in 1984 to $951 million in 1987. If you had enjoyed the same increase in income that the Japanese companies achieved, your annual salary would have gone from, say, $30,000 to $49,000 in those three years. Your federal income taxes would have dropped by about $400.
In 1988 residents of Japan collected $8.4 billion from their investments in the U.S. They paid U.S. income taxes at a rate of 6.1 percent. By contrast, American workers with incomes between $40,000 and $50,000 paid taxes at a rate of U.6 percent. Residents of the United Arab Emirates fared even better. They collected close to $313 million from their American investments. Their tax rate: .1 percent – .1 percent. American workers making around $15,000 a year, struggling to make ends meet, were taxed at 53 times that rate.
Looking at it another way, if you made $40,000 a year and were taxed at that same rate, your average tax bill would have totaled $35.
Isn’t this just a matter of good intentions gone awry?
JAMES STEELE: In terms of the global economy, you have laws and regulations that have encouraged the global economy, that are on the books. You have also outdated tax treaty concepts. You have an I.R.S. which doesn’t have the resources to really audit corporations. You have the State Department, where things have gone awry. And then lastly, you have an income tax code that’s so complex people can’t figure it out.
BILL MOYERS: The result of this, you say, of all of this, is that some corporations can actually shift jobs overseas and, at the same time, get tax breaks, lower tax rates, here in this country, right?
DONALD BARLETT: That’s correct. What the companies do is move their costs to the countries with the highest tax rates and then move their profits to the countries with the lowest tax rate.
BILL MOYERS: So the result is to – excuse me. You started to say something?
DONALD BARLETT: Well, you might think of this for an ordinary person, when they sit down with their 1040 form to fill out on April 15th, if they make $30,000 if they can write off $29,000 in deductions, they’re going to be doing very well, as opposed if they can only write off $10,000 worth of deductions. Basically, that’s what corporations are doing.
BILL MOYERS: Well, couldn’t they put their residence overseas, so that…
DONALD BARLETT: There hasn’t been – unfortunately, the rule book writers have made sure that middle America has no access to any of these kinds of provisions.
BILL MOYERS: You know, what’s intriguing about this is that just six years ago Congress set out to change the tax code and to try to eliminate some of these inequalities. Let’s take a look at this.
President RONALD REAGAN: I feel like we’ve just played the World Series of tax reform and the American people won.
BILL MOYERS: The 1986 Tax Reform Act was intended to restore fairness to the American system. President Reagan praised it. So did prominent Democrats.
Sen. ROBERT BYRD (D-WV) : Mr. President, I join with the Majority Leader in expressing the hope that the overwhelming majority of this Senate will support the monumental tax bill that will pass the Senate today.
Sen. BILL BRADLEY (D-NJ) : No longer will people in poverty pay more than millionaires in taxes. No longer will middle income people pay a higher tax rate than some multi-billion-dollar corporations.
BILL MOYERS: But the Tax Act benefited some more than others.
ACTOR: [TV commercial] [singing] If they could see you now out on a fun ship cruise / Eating fancy food and doing what you choose-
BILL MOYERS: [voice-over] From 1985 to 1988 Carnival Cruise Lines, which promises evenings of dazzling entertainment, romantic dancing and fast-paced casino action aboard ships with names such as Fantasy and Ecstasy, produced total profits of half a billion dollars. The corporate income tax rate during those years ranged from 46 percent in 1985 to 34 percent in 1988, meaning that Carnival paid about $200 million in federal taxes, right? Wrong. Carnival paid not a cent in U.S. corporate income taxes on that half billion dollars in profits. Why? Isn’t Carnival’s office in Miami? And don’t its ships leave from Miami bound for the Caribbean with thousands of fun-loving Americans on board? Yup. But the company is incorporated in Panama and the U.S. tax code exempts shipping companies incorporated in foreign countries from having to pay U.S. income taxes. No wonder Carnival’s owner, Ted Arison, is smiling. No wonder Forbes magazine designated him last year’ as one of the richest people in the U.S., with wealth estimated at $2.3 billion.
ACTOR: [TV commercial] [singing] All I can say is, “Wow!” / Hey, look at where you are-
BILL MOYERS: In June, 1987, several months after the Tax Reform Act was signed into law, Carnival Cruise Lines issued a stock offering document confidently predicting that its tax-free status would continue. The registration statement filed with the S.E.C. states ”The company is not subject to United States corporate tax on its income from the operation of ships and the company does not expect such income to be subject to such tax in the future.” Today Ted Arison’s company still pays no federal income taxes on its cruise operations, which accounted for 78 percent of its overall revenue in 1990.
So Wall Street recommended Carnival stock essentially because the company doesn’t have to pay income taxes.
DONALD BARLETT: That was one of the recurring themes in one brokerage house report after another, which they distributed to their clients, Time after time they would say – they would recommend buying the stock on the basis that Carnival pays no corporate income taxes and there is no likelihood or little likelihood that they will.
BILL MOYERS: So Carnival is not unique.
DONALD BARLETT: No, far from it. Carnival is really typical of many, many corporations.
JAMES STEELE: We found, for example, that the Tax Reform Act of 1986, which was supposed to restore this fairness that we talked about earlier, was actually riddled with hundreds of exceptions, tailor-made exemptions, companies like Bear-Stearns, Seagram’s, got provisions that applied only to them, while vast numbers of deductions were eliminated and taken away for millions of other people.
BILL MOYERS: Did your reporting indicate how they got those exemptions, they got those little provisions in the tax code?
JAMES STEELE: There was a distinct pattern that you could point to, and that was many of these companies were among the most avid in terms of bestowing honorariums on people on the tax-writing committees, and also in the case of campaign contributions. But probably the most significant area was in hiring staff members, former staff members of the tax-writing committees. That’s probably the principal way that you make sure that you head off things that can hurt you or get things that you need.
BILL MOYERS: But you know, these tax breaks have historically been designed to provide incentives to companies to create prosperity for the American people.
JAMES STEELE: That’s correct.
BILL MOYERS: Are you saying that that’s not happening as a result of these very special little tax favors that are given?
JAMES STEELE: The small ones like this, in fact, are not incentives. They are basically just giveaways to an individual company or a project or, in some cases, even an individual.
DONALD BARLETT: It really represents a massive Welfare program for the rich, is what it ultimately boils down to.
BILL MOYERS: So you’re saying it’s not a level playing field.
JAMES STEELE: No, by no means. In fact, one of the most interesting com-ments – we were criticized by one person on a House staff committee once over the phone. He was talking about, ”You criticized these transition rules, these tailor-made provisions that get in the Act. The issue is really one of access. These people had a case to make.” But the fact of the matter is, 99 percent of the American public has no way to make that case.
BILL MOYERS: Well, let’s look at one town you visited and report on in your series. In this particular town, the company got a tax dodge and the workers got the axe. Listen to Karen and Joe Montgomery.
KAREN MONTGOMERY: My income now compared to what I made at Whitehall is, with two jobs, it isn’t even a third of what I made at Whitehall.
JOE MONTGOMERY: We were working seven days a week, production on three shifts, seven days a week. And if somebody had come up and said that this was in the making for you, I don’t know what I would have said, but I don’t believe I would have believed them.
BILL MOYERS: Karen and Joe Montgomery used to work at Whitehall Laboratories in Elkhart, Indiana. A division of American Home Products, a New York-based health care conglomerate, Whitehall Laboratories manufactured such familiar non-prescription products as Advil, Anacin, Dristan, Denorex and Preparation H.
KAREN MONTGOMERY: It was like one big family, really.
BILL MOYERS: Karen had been at Whitehall for 32 years, working in management. Joe was a union member. He worked there 25 years.
KAREN MONTGOMERY: Most employees came to stay. The turnover was not great. They had good benefits and good salaries so, you know, they did have long-term employees. And all the employees gave 100 percent. You know, they never had to worry about, you know, anybody.
JOE MONTGOMERY: Obviously the workforce was successful. The reason they moved wasn’t because they weren’t making money at our plant.
KAREN MONTGOMERY: Why did they move?
JOE MONTGOMERY: They moved for the tax purposes, the benefits they received in Puerto Rico.
BILL MOYERS: Late last year Whitehall Laboratories closed its Elkhart plant permanently. Eight hundred people lost their jobs because many of the products they had been making were shifted to a new plant in Puerto Rico. Why? Because when Congress amended the tax code in 1976, Congress allowed profits made in Puerto Rico to be exempt from federal income tax.
Connie Malloy is president of the local union representing the Whitehall employees. She had worked in the plant for 25 years.
CONNIE MALLOY: You know, we didn’t even realize that I.R.S. tax code 936 even existed till this all came up and we started investigating, you know, why our company would want to move to Puerto Rico. And the reason corporations are moving to Puerto Rico is because of I.R.S. tax code 936. And what that does is, it lets companies operate in Puerto Rico nearly tax-free on all revenues earned. They pay no federal taxes on it. It makes the playing field so uneven because businesses can’t compete on the mainland with that type of profits. It’s worth over $60,000 per worker in tax benefits to the corporations that are operating down there. For American Homes, they’ve gained over a half a billion dollars in the years that they’ve been operating in Puerto Rico. That’s what they’ve saved in taxes. That’s the loss to our U.S. Treasury. We’re actually paying to have our own jobs moved and it’s a real tragedy.
BILL MOYERS: Puerto Rico now boasts the largest concentration of pharmaceutical companies in the world. In fact, the 1976 tax act led to a corporate stampede to the island. Tens of thousands of factory workers in the U.S. have been replaced with lower-paid workers and billions of dollars in income taxes have been lost to the U.S. Treasury.
Karen Montgomery remembers her boss talking about the new plant in Puerto Rico.
KAREN MONTGOMERY: When they first went to Puerto Rico, Dick Hill came and told us that we didn’t have anything to worry about, our jobs were secure. And maybe there’d be a few in the production area that would be laid off, but when they had the Tylenol scare, they had hired a lot of people so we could produce Anacin capsules like crazy. So, you know, we didn’t figure it’d be too many would be lost. I think they were lying to us when they told us that. They knew what was going on.
JOE MONTGOMERY: The way they emphasized not to worry probably should have been a sign for us to worry, because every time our representatives from the corporate office in New York were down, that was one of the first things they would say is, ”You don’t have to worry. You can trust me.” And I think those are words that people want to hear.
KAREN MONTGOMERY: When I first learned I was going to be out of a job, I was a little disappointed, sick, kind of scared, didn’t know what was going to happen. We have – having a teenager facing college.
BILL MOYERS: When the Whitehall plant in Elkhart was closed, Karen was offered a job at a facility in Virginia, but her husband Joe wasn’t. She had a difficult decision to make.
KAREN MONTGOMERY: So that meant me going there by myself and leaving the family here for two years or taking them there and, you know, Joe trying to get some kind of a job. When they offered me the job, they told me that they wanted me to decide in 24 hours after I went back home. They didn’t offer me the opportunity to bring my husband down to look at the area or anything. And so, you know, I just told them I wasn’t going to make that kind of a decision, nobody can make that decision, in 24 hours, or I couldn’t, leaving the family, you know, what I was faced with.
JOE MONTGOMERY: I keep thinking I’m going to find a good job, I’m going to get a job because I’ve always been able to. But there’s a big difference in looking for a job when you’re 22 and 23 and then when you’re 48 years old. Jobs in this area are difficult to come by. Good jobs are even tougher.
BILL MOYERS: Karen found a job running the office at the local Moose lodge. She also works part-time at Sam’s Wholesale.
KAREN MONTGOMERY: Well, I work about nine hours over to the Moose and three hours at Sam’s, so it’s about 12 hours a day. I’m going to school for a business management certificate. I’m taking some computer classes, and then a class on what managers should know. I hope to get a better-paying office job right now, maybe in management. Most jobs that you go for, you have to have some kind of a degree or certificate of some kind, so I’m hoping that it’ll help me.
JOE MONTGOMERY: The people that have taken our jobs, it’s the greed. You know, whatever it is, they didn’t care three years ago and they don’t care today and they won’t care tomorrow unless the laws are changed and then they’ll care.
RALLY SPEAKER: Are we going to let American Home Products shut us down?
BILL MOYERS: Union president Connie Malloy has been leading the fight to get the tax law changed.
RALLY SPEAKER: Are we going to let American Home Products run off to Puerto Rico?
CONNIE MALLOY: -still target the Ways and Means Committee to try to get them on, particularly Charlie Rangell.
I’ve been to Washington probably – at least six times over this past year and half during this struggle. If we’re going to get on a tax bill this year, we’ve got to – we’ve got to move, so maybe we should do another mass mailing on Mr. Rangell.
We’ve been trying to lobby Congress to amend tax code 936 so that corporations that move to Puerto Rico, if they’re not creating new jobs, if it’s just a transfer of jobs from the mainland to Puerto Rico, then they don’t get the tax credits. If they want to still move there, that’s fine. You can’t stop the businesses from moving, but we can certainly control what we do with our – the use of our federal dollars. And it’s been very difficult. You would think that this is such a just, simple issue that, you know, you don’t give away tax dollars to cause unemployment – you know, our tax dollars were never intended to be used like that, but it’s very difficult to get people to sign onto that tax reform to get them to sponsor it because of the strength of the pharmaceutical industry. The strength of their lobbyist is just phenomenal. You know, they can pump millions of dollars in it. They’re making all these huge profits from that little loophole in the tax code, so they can afford to really lobby Congress to keep it just as it is, to keep the status quo, and that’s what they do.
JOE MONTGOMERY: You can’t tell me when you read these laws that it was done for the betterment of the country. It doesn’t make sense. If I’m not mistaken, we have less than 30 Congressmen and Senators supporting bills to change 936. Now, you would think that the Congressman and Senators in every district, in every state in this country should be concerned about the people working. If you talk to them, they are.
CONNIE MALLOY: It’s really frustrating because I’ll sit in there with a Congressman and they’ll look at me and say, “Yes, we understand the issue. We sympathize with you. We agree with you” and ”We’ll look at it.” And you come home and you check back to see if they have signed onto the bill, and they haven’t.
BILL MOYERS: Connie Malloy talks about her inability to get the attention of Congress, to get them really to listen. What did you find in your reporting on access by the pharmaceutical companies to Congress?
JAMES STEELE: This is one – a very interesting area, Bill, because if you look back over the last few years, this has been raised, this particular tax exemption. It’s always been in the books for many years, but the ’76 act greatly increased the stampede of companies to Puerto Rico. Since that’s happened and since so many plants have closed down, it’s been raised by people like Connie Malloy, “Let’s repeal this. Let’s scale it back.” But every time that happens, the pharmaceutical companies are in the forefront of the move to hire the lobbyists, usually the former staff members, who are very successful in making the point that this particular preference should be preserved.
DONALD BARLETT: Back in 1985, they actually had a kind of shuttle service running between Washington and Puerto Rico and that year, I think it was Miss Universe was Puerto Rican, and she was available down there to be photographed with each local Congressman who flew down. They put them up in the casino hotels, $150-a-night rooms, took them around the islands to show them what good works they were doing.
BILL MOYERS: But in a world of self-interest, isn’t it a rational act to move write-offs and jobs to the cheapest locale?
JAMES STEELE: Absolutely.
DONALD BARLETT: We’re taking, basically, $60,000 in U.S. tax money to eliminate a job that pays $28,000 in this country and create a job that pays $12,000 in Puerto Rico. It’s not logical.
JAMES STEELE: You can’t blame the companies, though, for taking advantage of this particular rule. I mean, that’s what so much of the book is about. It’s the rules that Washington writes or doesn’t write. This is a rule that provides that incentive. It reminds us of a fascinating quote we ran across from the 1930’s from J.P. Morgan. He said, “Congress should levy taxes and if they don’t collect the taxes, a person is a fool to pay the taxes. If a mistake has been made, then it is up to Congress to correct that mistake, not for the average taxpayer.” And that’s what you have in the pharmaceutical industry.
BILL MOYERS: In your book you write something that prompted me to order up a short piece of video here. Let’s look at it before we have some more discussion.
Here’s what Barlett and Steele write. ”You might think of what is happening in the economy inï terms of a professional hockey game, a sport renowned for its physical violence. Imagine how the game would be played if the old rules were repealed, if the referees were removed. That, in essence, is what is happening to the American economy.
“Someone changed the rules and there is no referee, which means there is no one looking after the interest of the middle class.”
Susan Lee, you are a journalist and economist for the American Enterprise Institute. Barlett and Steele say this is what went wrong in the 80’s: The referees disappeared. Do you think that’s what went wrong?
SUSAN LEE, Economist: Well, first of all, let’s step back, as economists like to do. Let’s take two giant steps back and say, “Did things go wrong in the 80’s?” I could make a series of nine possibly long pieces. They may not win a Pulitzer Prize, but I could say, “Look at all the great things that happened in the 80’s. Look at the explosion of jobs. Look at all the entrepreneurs, people who started out in their garages and now they’re millionaires. Look at all the senior citizens who, at the beginning of the 80’s, were eating cat food and now they’re in condominiums in Florida. Look at all the women who have entered professions.” I could make a very credible series and it would be absolutely as – as objective a look as your look, which is to say this is a big, complicated economy. Things go wrong with it, things go right with it. If I wanted to emphasize what went right with it, I could do the same thing. But that’s – you know, you have to take two steps away and if you take two steps away, it’s not quite as interesting because it’s-the tapes that we’ve been seeing – very sad, very moving.
DONALD BARLETT: I guess we would really disagree with the explosion in jobs. The tax return data shows no such phenomenon whatsoever. If you look at the number of returns filed by people earning salaries and wages alone, over $20,000 a year in income, both President Reagan and President Bush made a point of 20 million jobs were created. They don’t show up in the tax return data. We either have tax return fraud on unparalleled scale in this country now or those jobs were never created. And it’s the later. They were never created.
BILL MOYERS: Ed Rubenstein is an economic analyst for National Review, and you’ve written about their data.
ED RUBENSTEIN, “National Review”: Yes, well, in fact there were ap-proximately 19 million jobs created during the good years of the 1980’s and if the I.R.S. returns don’t show that, it’s because a lot of people at the lower end of the income scale were allowed not to file taxes as part of the 1986 tax law, which was a very progressive shift in taxation. It removed about four or five million low-income taxpayers from the tax scale. So by looking at I.R.S. data, you’re not getting a real appreciation of the economic growth that took place in the 1950’s.
DONALD BARLETT: Not really, because low income is not a $25,000 salary. There is no one earning $25,000 a year in salary who doesn’t have to file a tax return. The people removed from the tax rolls, you’re looking at $10,000 and under. And it’s hard to imagine this as being a plus when you say we’re going to take seven million people out of the economy because they are so poor they can’t pay taxes, add them on top of the millions and millions already there who aren’t paying taxes, and say this is a plus. This isn’t a plus. We’re talking about tens of millions of people who are consigned to either low-wage, minimum-wage or basically no-wage jobs.
BILL MOYERS: Barbara Ehrenreich is a writer and social critic whose book created quite a response in the 80’s, Fear of Falling, about the middle class. Where do you come out on this “good times versus bad times” for the middle class?
BARBARA EHRENREICH, Author, “Fear of Falling” : Well, Susan is right. The 80ís were great, I mean, for many people. Many people got richer. They piled on those condominiums. They moved into million-dollar homes in the suburbs. They were the rich. And for most people, though, in what we might call the middle class, used to call the working class, and of course things just got worse, like job creation. I think Don and Jim can back me up on this, that there are studies that show that half of the new jobs generated in the private sector paid poverty-level jobs. Now, am I being too low with that half? I mean, we had a boom in Burger King jobs, basically, in the 80s, as well as a boom for the wealthy. So yeah, Susan, you can do that show and we’ll see a lot of people cavorting through the 80’s.
DONALD BARLETT: Well, there is no question on the explosion in the wealth. In the 80ís, from ’80 to ’89, you had the largest increase in people earning, say, more than $500,000 in the country’s history.
SUSAN LEE: But Don, don’t we want that? I mean, you and Barbara talk as if we don’t want people to get rich, we want them to somehow stay in the middle class. I think the whole notion of having America and having free enterprise is that people move from the middle class to the upper middle class to the upper class.
DONALD BARLETT: But the problem is-
JAMES STEELE: But you also had a big explosion at the bottom, as well.
ED RUBENSTEIN: The question, seems to me, is would we be better off had the rich not achieved these gains in the 80’s?
BARBARA EHRENREICH: But the poor lost, the working class lost, the blue-collar working class lost badly in the recession of the early 80’s, as well as long-term.
JAMES STEELE: Wages were very stagnant across the board.
BARBARA EHRENREICH: So we’re not just – you know, oh, it’s great if –
ED RUBENSTEIN: But the poor did not lose.
BARBARA EHRENREICH: It’s great if the rich get rich, but when the poor get poorer at the same time and the middle class sinks, then what you’re talking about is not just somebody getting rich. You’re talking about a transfer of wealth.
ED RUBENSTEIN: I beg your pardon.
SUSAN LEE: The magic words-
BILL MOYERS: Magic words?
SUSAN LEE: The magic words, “transfer of wealth”- I think everybody around this table can agree on one thing, and I am surprised that you didn’t have it in your series, because it’s a really doomster-gloomster thing that you should have had, and that is there’s been a massive transfer of wealth and redistribution of income from middle class or working class people and children to the elderly.
BARBARA EHRENREICH: Let’s talk about the transfer of wealth between the social classes. I mean, that’s what was going on. If you cut taxes for the very wealthy and as you increase taxes, especially through Social Security taxes, for the working class, the middle class, whatever you’re going to call it, then you get a net upward redistribution of wealth. Isn’t that what happened?
JAMES STEELE: Absolutely. Precisely.
DONALD BARLETT: And also, we-
SUSAN LEE: But it’s ending up with the seniors.
DONALD BARLETT: We did mention Social Security in our – as a matter of fact, we used a member of Congress as an example, Alan Cranston, how many people out there it takes doing ordinary work to pay Alan Cranston’s Social Security. It’s ridiculous. There’s no argument about that and that’s in the series.
ED RUBENSTEIN: Well, I find it amazing that people can talk with a straight face about cutting taxes for the wealthy when in fact the top 1 percent of the taxpayers in this country, in 1980 they were paying 20 percent of total income taxes. In 1990, they’re paying 30 percent of total income taxes. Where’s the tax cut? That’s my question.
DONALD BARLETT: There’s no question about that. When you look at the total, the aggregate dollar amount of taxes, those people at the top are paying substantially more today than they did in 1980. That’s because there are so many more of them and the average tax bill from ’80 to ’89-from ë86 to ’89, for millionaires, dropped by more than a quarter million dollars. It dropped 30 percentage points. For someone earning $30,000 to $40,000, that tax bill dropped 10 percent. The millionaire received three times the tax rate cut of the middle class family from ’86 to ’89. There’s no question that in terms of the total dollar they are, but that’s a terrible trend because what we’re saying is we’re moving toward a two-class society, when everyone over here has all the money, they’re going to pay their taxes, and everyone over here doesn’t have to worry. It’s kind of like that New Yorker cartoon where you have the two men in the drawing room, drinks in hand, and one says, “Here’s how the economy works.” He says, “If the rich have money, they invest. If the poor have it, they eat.” And that’s where we’re heading in this economy.
ED RUBENSTEIN: Well, a lot of those millionaires in 1990 were not millionaires in 1980. A lot of ordinary people, upper middle income people, found that the business opportunities and the economic growth of the 80’s was so enormous that they were propelled from that great middle up into the upper incomes. I don’t think we should be concerned – I think that’s a positive trend.
DONALD BARLETT: The problem is, uh, if you’re right, if that was business propelling them, but it wasn’t. It was speculation in the stock market. It was Wall Street and it wasn’t business and that’s why the jobs weren’t created. If you had been going back to the robber baron era, at least they created jobs. These people did not create jobs.
JAMES STEELE: At the same time, you’ve made the tax code so much more regressive from Social Security.
SUSAN LEE: They created zillions and zillions of jobs, at the risk of exaggerating. But what Wall Street did, and this is misunderstood, is they assisted U.S. business to become competitive. Sure, there are excesses in mergers and acquisitions and the takeovers and we saw some of the really sad stories on the tape segment. But what Wall Street did, they did what global forces propelling American business and what American managers could not bring themselves to do themselves, and that is, they restructured, made more competitive and certainly lowered cost in great segments of American industry, such that we still have these industries. I don’t think you can be mad at Wall Street for that. I mean, of course there were abuses, but overall, and I think most people agree, thank God.
BARBARA EHRENREICH: But Susan, there’s no evidence that they have become more competitive as a result of the massive layoffs, which were so damaging to the middle class. We’re still faced with this problem that we’re not competitive. We’re being criticized by Japan, criticized by Germany.
SUSAN LEE: Barbara, that’s wrong. Manufacturing as a share of GNP slipped for a while, and now it’s back. Our exports – our exports, which is what we export, we export a lot of manufacturing, has been the one bright spot in this economy for the past five years. Zip! Like this.
BARBARA EHRENREICH: You cannot argue that the problem of competitiveness
SUSAN LEE: That is a testimony-
BARBARA EHRENREICH: -has been solved over the 80’s.
SUSAN LEE:. Oh, no! I wouldn’t argue that. But we’re certainly making a start and I think the figures are very clear about that.
BILL MOYERS: What are the – aren’t there some very long-term problems that the 80’s – and some of your research goes back to the 70’s – have left for us, I mean some really crippling dilemmas that we haven’t solved – we don’t know how to solve yet?
SUSAN LEE: Well, I think one of them is what-and I do think it underlies the people are crabby because of the redistribution of income, but I think we’re – we do ourselves a disservice if we say, “Well, it’s – rich people got richer and poor people got poorer.” We should look at the really giant redistribution and that’s going to be a terrible problem for the 90’s because we have this distribution in favor of the elderly at the expense of the young. What’s going to happen is that we’re going to have less and less young people and workers who are productive to support this growing base of elderly.
BILL MOYERS: It’s not as much of a problem if we are creating wealth.
SUSAN LEE: Right.
JAMES STEELE: That’s right. That’s exactly right.
SUSAN LEE: If the economy continues to grow – let’s say it grows 4 percent a year, four or five-
BARBARA EHRENREICH: It grows at 2 percent.
SUSAN LEE: I know. That’s a problem. If it grew at 5 percent, that would be fine.
BILL MOYERS: But Susan’s point is that we’re-
SUSAN LEE: If it’s closer to-
BILL MOYERS: -not creating prosperity and wealth, right?
BARBARA EHRENREICH: Well-
BILL MOYERS: I mean Barbara. Excuse me.
BARBARA EHRENREICH: Right. My point is, we’re not – but my point is also, is because – I mean, what you just said, Susan, is “Look at this. Some people got rich. Some people got poorer, but let’s look at the big picture.” Suppose you’re at the bottom? Suppose you’re at the middle? Look at it from that point of view. That’s the point of view that is not often enough represented and that’s why I’m so thankful to Don and Jim for what they’ve done. What is the problem with this? Well, there’s a – all right, I’m going to look at the big picture. The big picture is, when you have a group of rich people and you have a large number of poor people and you have a diminishing number of people in the middle, what you lose in the end is democracy because democracy depends on some – you know, not absolute equality, but you don’t have democracy when you have stretch limos driving by in the streets of New York, driving by families eating from trash cans. No chance. No chance of that democratic dialogue any more. So that would be my big picture. We’re losing that.
BILL MOYERS: Let’s bring Ed in here, Don.
ED RUBENSTEIN: Well, I think economic growth is not – does not play favors with anyone segment of society. The poor people benefit and indeed, during the 1980’s, the number of people classified as poor by the federal government declined by five million. This was a sharp contrast to the 1970’s when you had inflation, you had a liberal president who thought that redistribution of income was perhaps a proper agenda. You had the exact opposite of that. You had more people falling into poverty in the 70’s. You had – we had Ronald Reagan. He cut taxes. We did have economic growth. There was fewer people at the lower end in poverty and more people migrated from the middle class up into the upper incomes. So economic growth is – alleviates these social tensions that I think are growing now.
BILL MOYERS: If that is so – you know, a reporter – I’m not an economist. I’m a reporter, like them. And out listening to America, I can tell you that everywhere I go, people in the middle class, $15,000 to $70,000, feel that something radically did go wrong in the 80’s. They don’t quite know what it is. They’re beginning to think, “Well, you can’t blame this person or that thing.” But they really do believe something’s gone wrong and this is affecting, as Barbara says, how they view our political system, which they do not any longer feel is legitimate.
ED RUBENSTEIN: Well, I think the perception is far worse than the reality, frankly, and that’s partly the result of journalistic agitprop that is
BILL MOYERS: Are you agitpropers?
ED RUBENSTEIN: You’re drumming into people that, you know, we are on the tip of a calamity. I think the government made things much worse in this country a couple years ago when we raised taxes in this 1990 tax act. There’s no reason for this recession to have lasted as long as it has and it is made in Washington. I think – it was – I think a lot of this redistribution of income has come back to haunt us now in this present situation.
DONALD BARLETT: I want to go back to what Susan said about – that what Wall Street did was so good during the 1980’s and the restructuring. It wasn’t good at all. It was probably the most destructive thing that’s happened in this country in this century. And the reason is this. You were eliminating factories and closing out jobs without having a replacement. That’s never happened before in this country. Never. When Baldwin-Lyman-Hamilton stopped making steam locomotives in Philadelphia back in the 40’s, Zenith started making television sets. Throughout this country’s history in this century there’s been a replacement industry. There was none in the 80’s. Even worse, there’s none today.
SUSAN LEE: Well, again, this is good. This is called “comparative advantage” and when you have the globalization of the economy, you want countries that can make better X’s to make the X’s. You want the United States, which makes fabulous Y’s, to make fabulous Y’s. Otherwise what you end up with is a very closed system. You end up with something like the former Soviet Union, which was closed to trade and closed to changes and flexibility within the structure itself.
BILL MOYERS: But what do you do about the people you did see in the video, who find no replacement jobs out there except lower-paying, lower-skilled kind of marginal jobs.
SUSAN LEE: Right.
BILL MOYERS: What do you do about them?
SUSAN LEE: Well, you have to – first of all, you have to pay attention to it and I don’t think Washington has paid sufficient attention to it. I don’t think just extending unemployment benefits for 13 additional weeks – there has to be a serious commitment to job retraining, to – just a simple thing like job information. There’s no one place where you can find out if there’s-if you read about these poor industrial workers who have to actually go to a city to read the want ads to see whether there is a job for them. I mean, there are many, many things that Washington could be doing and is not doing. But to say that we have to freeze everything, we have to have exactly the same companies we’ve always had in the same industries in the face of globalization is-
JAMES STEELE: I don’t think anybody’s saying that. I don’t think anybody’s saying that.
DONALD BARLETT: No, no, no. Nobody’s saying that. But we shouldn’t subsidize the restructuring. We shouldn’t subsidize the exporting of jobs. This is nothing but Welfare for people on Wall Street and it is ludicrous for this country to spend tax dollars to ship jobs overseas. That’s not the free market economy at work.
BILL MOYERS: Well, let me ask the three
DONALD BARLETT: That’s subsidies.
BILL MOYERS: Let me ask the three of you on this point. The key point in Steele and Barlett’s reporting is that because of the influence of powerful and organized interests -democracy – the U.S. government over the last 12 to 15 years has rigged the rules of business to favor those interest groups over the working and middle class . Do you agree with their central thesis?
ED RUBENSTEIN: Well, I don’t think the middle class is oppressed because of the government rule book that Badett and Steele mentioned. I think that there are a lot of good jobs in this country that are lost to foreign competition and that’s because – one of the reasons is because Washington has increased the tax load on corporations. It has increased regulation on corporations and made it very hard for U.S. corporations to compete with companies abroad.
DONALD BARLETT: Wait a minute. Let’s deal with corporate income taxes. This is one of my favorites. In 1951 corporations provided 31 percent of U.S. government revenue -31 percent – individuals, 47 percent. Last year the corporate share was 15 percent, cut in half. The individual share soared to 71 percent. That’s not enough, so they take $100 million in Social Security taxes and apply it to government programs, as well. Corporations have never been taxed so lightly in this country as they are being taxed now and if you look at Japanese tax returns, you will find that Japanese corporations pay a higher percentage of their taxes to Japan than U.S. corporations pay in this country.
ED RUBENSTEIN: I disagree with those statistics on their face. Yes, the cor-porate tax has a lesser share of total federal revenues now. That’s because personal income taxes have burgeoned. They’ve gone up in real terms. But if you look at corporate taxes relative to profits, that has, in fact, gone up considerably.
DONALD BARLETT: Well, the problem with the profit is, that comes after all those little deductions on the line, many of which are really kind of funny little deductions-
SUSAN LEE: Don, you’re arguing against yourself. If you really want exactly the same businesses and exactly the same companies-
DONALD BARLETT: No, no.
SUSAN LEE: Wait a minute! Wait a minute! Or even half of them, then you want to give them a tax break. You want to keep them here. I mean, you can’t say, ”Well, we can’t subsidize them and we can’t give them any tax breaks, but they can’t leave.” I mean, you-
DONALD BARLETT: Just make it neutral.
SUSAN LEE: Well, in many cases “neutral” is “Bye-bye.”
ED RUBENSTEIN: They’re not leaving for Puerto Rico because the weather is better down there. They’re leaving because the taxes here are excessive.
JAMES STEELE: No, they’re not. They’re leaving because there’s-
DONALD BARLETT: Absolutely not.
JAMES STEELE: – an astonishing tax break
DONALD BARLETT: Absolutely not.
JAMES STEELE: -that’s an incentive to move down there and everybody knows that. I don’t think anybody disagrees with that.
BILL MOYERS: Barbara?
BARBARA EHRENREICH: Well, I – my one criticism of your report, which I think is excellent, of course, is that – is that maybe you don’t come down hard enough on the corporations themselves. I mean, after all, why is the government rule book biased toward the corporations? Because corporations – you know, they have ways of lobbying. You talk about all those special interest provisions in the tax code and so on. I think that, you know, one thing that has to be brought out here is that from the perspective of the kind of people we saw in those tapes, from the perspective of many of my neighbors in a sort of blue-collar suburb, there’s – the corporations are out of control, you know, that we have plutocracy now. This is what happens when you redistribute wealth so rapidly up. They can make the decisions. Where is our input? You know, when they can decide to destroy a community by moving and you don’t even get a vote, not even polled on that, there is a sense that the country is being run by -or maybe I shouldn’t say “run”, I should say “plundered” – by a little group at the top. And I think maybe you could have emphasized that more. It’s not just Congress or if it is Congress, it’s because Congress is being bought by these interests.
DONALD BARLETT: You know, you’re absolutely right and all you have to do is look no further than Marc Rich, how he runs things in this country from Switzerland, when in theory he’s a fugitive, and when in fact it is very clear that someone in the FBI or someone in the Justice Department or someone at a higher level of the executive branch has said “Hands off Marc Rich. You don’t arrest him.” No one remains a fugitive for nine years unless someone has said, “Take a pass.”
BILL MOYERS: We began with Marc, Rich and we have to end with Marc Rich. This has been a discussion I would like to continue if we had more time, but you can
read America: What Went Wrong? by Barlett and Steele. You can read Susan Lee’s book ABZ’s of Economics. You can read Ed Rubenstein in the National Review and you can read Barbara Ehrenreich’s book Fear of Falling and continue the debate on there where you are.
I hope you’ll join us next week for another edition of Listening to America. I’m Bill Moyers.
This transcript was entered on April 2, 2015.