Third Way Dispatch

As the nation grapples with an historic economic crisis, we write with five ideas that we hope you’ll consider. These ideas have a single aim—to restore the fortunes and confidence of the middle class—which we believe is the key to a long-term recovery.

Unemployment and foreclosure rates are on the rise, and the recovery plan must provide triage for those in desperate circumstances. But the recovery will be predicated even more on the majority of middle-class Americans who will keep their jobs and homes. What they’ve lost are wealth and confidence, both of which must be restored if there is to be a long-term recovery. Middle-class Americans have faced a shattering reversal in their fortunes—stomach-lurching losses in their 401(k)s and home values and an increasing litany of anxieties. Can a family can still afford to send a child to college? Is a retirement with some semblance of comfort still attainable? Even those who have the means are tightening their investments and spending, thereby accelerating the downward spiral.

As critical as it is to strengthen the safety net of unemployment benefits, food stamps and other emergency aid, we must also offer highly visible help to those who may not be on the precipice but who nonetheless hold the mood and confidence of the nation in their hands. These households are in the prime of their working years and earn between $40,000 and $100,000—too wealthy, in fact, for most safety-net programs such as food stamps but not nearly wealthy enough to have benefited from conservative trickle-down policies. These are the households that will lead the nation out of recession—if their confidence is restored.

FIVE PRIORITIES FOR A MIDDLE CLASS ECONOMIC RECOVERY

1. Cutting taxes for the middle class. The middle class needs a college tuition tax credit, as well as relief from child care costs and elder care expenses. For families facing even tighter budgets, affording college may have gone from merely difficult to near impossible. Child care and elder care tax breaks would ease the stress for “sandwich generation” households faced with the challenge of caring for aging parents while at the same time juggling careers and raising children.

2. Ensuring health care coverage stability. A major source of anxiety for middle-class Americans is the possible loss of health care coverage in the event of a loss or change in jobs—and as job losses mount, this anxiety is increasingly becoming a reality. A $3,500 advanceable, refundable bridge insurance tax credit can help pay for transitional health coverage—including 100% of COBRA premiums for up to four months—for workers between jobs.

3. Replenishing retirement savings. For a 55-year-old couple with $100,000 invested in the S&P, this year’s losses would amount to $36,000—potentially enough to require this couple to postpone their plans for retirement. While the markets will recover in time, a federal 401k match of up to $1,000 per worker can help jumpstart people’s ability to recoup their losses and build the confidence necessary to turn the economy around in the long-term.

4. Restarting the housing market. A significant factor depressing the housing market is a glut of inventory—even as potential homebuyers sit on the sidelines. A generous, but temporary, homebuyer credit of $5,000 for all home purchases can help restart the housing market. An above-the line mortgage interest deduction for non-itemizers can help put more money into the pockets of the 37% of homeowners who don’t itemize, and federal grants for the creation of state Emergency Mortgage Loan Assistance Programs can help homeowners who’ve lost their jobs with a few months of mortgage help.

5. Spurring job creation. In addition to new tax breaks for small business, including a standard home office deduction and an increased deduction for start-up costs, we propose a bonus R&D credit for companies that manufacture in America. The size of the bonus would depend on the level of domestic manufacturing. This proposal would reward companies that create and keep good jobs in the U.S.

On October 28, 1980, the race between President Jimmy Carter and challenger Ronald Reagan was deadlocked. Despite the hostage crisis in Iran and a poor economy, the electorate was not sold on Reagan, and his advisors thought he was more likely to lose than win. But on that night – the night of the only presidential debate – Reagan used his closing statement to frame the remaining week of the campaign. He did so in four words – “are you better off?” A dead heat turned into a blowout.

Wall Street is off to its worst January in history. The nation’s biggest mortgage lender is rumored to be nearing bankruptcy. Unemployment is on the rise. Every day seems to bring more bad news about the economy, and Americans’ view of the economy is at its worst since 1992.

Bad economic times are red meat to many progressives, who will be jumping on the chance to talk down the economy still further and trumpet a message of neopopulist pessimism.

Progressives should resist that temptation. We shouldn’t be trying to convince Americans that we’re on the brink of a new Depression, or that the middle-class is teetering on the precipice of poverty. Rather, we should be working to persuade Americans that we understand what it takes to get the economy moving forward in a way that benefits average families.

Our new memo offers our take on the elements of a middle-class economic package that will both provide the economy the short-term boost it needs and put the middle class on solid, long-term footing. We propose:

• Short-term middle class tax cuts to boost consumer spending and restart the housing market;

• Targeted help to families who’ve hit a rough patch through no fault of their own;

• Investment for new investment by businesses, including small businesses, to keep the economy growing;

• Permanent middle-class tax cuts and new policies to create middle-class wealth and help families navigate the new rules of economy; and

• Long-term infrastructure investments in schools, highways and broadband technology.

Our package is not about rescuing the middle class, progressives should be wary of portraying the middle class as victims. Rather, our message should be about re-orienting government policy toward ensuring future middle-class prosperity.

In today’s LA Times, I’m quoted – accurately and fairly – commenting on the Bush tax cuts and saying that the big challenge for Democrats in explaining why they don’t want to extend the cuts is to respond to the charge that they support the biggest tax increase in history.

I do believe that this is the challenge facing Democrats. Republicans only have one dusty old playbook, and on page one is their equivalent of the run off-tackle: charge the Democrats with engineering “the biggest tax increase in history.” It’s an easy play to run, and it often yields big results with little risk. With the Bush tax cuts set to expire in 2010, you don’t have to be Heath Shuler to know that play is coming.

But just to be clear: I view this as a challenge that Democrats must find a way to meet. The Bush tax cuts were ruinous and grossly irresponsible, and they must be repealed in significant part.

The way to meet the challenge is to put the question in values terms: “It’s quite simple – Republicans believe that the rich are the engines of the economy, and so they believe that making the rich a lot richer drives economic growth. Democrats believe that the middle class is the engine of the economy. If anyone should get tax relief, it’s the middle class.”

To torture the metaphor further, I am hoping that the Democrats will respond to the Republican play with a very large linebacker who will fill the gap.

I grew up in Philadelphia and also happen to be a lifelong Red Sox fan, so I know a little bit about losing. In Philadelphia, losing is handed down from generation to generation. I remember the day some 30 years ago when my father bestowed upon me four single World Series tickets from 1964 – games 1 and 2 and 6 and 7 (if necessary) for the Phillies. Tickets issued when they had a 6 ½ game lead with 12 to go. Tickets issued with Jim Bunning and Chris Short leading the rotation and Richie (“call me Dick”) Allen, Johnny Callison and Tony Taylor anchoring an offensive juggernaut. Tickets issued before a rookie second baseman named Joe Morgan blooped a game-winning single, before a steal of home stole another game, before they dropped 10 of 12. No, games 6 and 7 weren’t necessary and neither were games 1 and 2. The Cardinals won the pennant that year, defeating Jim Bouton’s New York Yankees.

But with losing comes optimism. I believed in the Phillies every year as well as my adopted Red Sox. I believed during the “you gotta believe” Tug McGraw years and the “Yes we can” Dave Cash years. I believed when Dave Henderson took Donnie Moore over the fence only to see Mookie Wilson ground one through the legs in 1986. And occasionally that belief is rewarded. The 1980 Phillies won the World Series in improbable fashion (I cried). The 2004 Red Sox came from 0-3 to sweep four from the Yanks and deliver a world championship (I matured to gloating). Good things do happen.

Two weeks after hitting theaters, Michael Moore’s new movie on the American health care system, Sicko, stands among the country’s top 10 box office releases (way behind the Transformers but ahead of Shrek III). Not bad for a summer flick with no explosions or Bruce Willis.

For advocates of major health care reform, this uptick in public interest is yet more evidence that times are ripe for a new discussion about the way we do health care in this country.

After Iraq, health care is once again the number one topic of concern for potential voters. Polls show growing public discontent with the current system and a seeming eagerness for change. A March 2007 CBS/New York Times poll, for example, found 59% of Americans to be “very dissatisfied” with health care costs in general, and 52% to be “very concerned” about future costs. Numerous other polls show strong majorities in favor of more government involvement in regulating health care costs.

Optimists for major reform may say the only big question left is this: Canada or Britain?