Free B005HFI0X2 EBOK by Michael Lind Page B

indirectly, are “in service” to the affluent few, like the butlers, valets, and maids lined up in the driveway of an Edwardian British country house—would mark the abandonment of the American Dream.
    If the United States is to avoid turning into a high-tech version of stratified societies like Brazil and Mexico, with which it shares the Western Hemisphere, mechanisms must be found to allow most of American citizens to share in the gains from productivity growth, in addition to falling prices for particular services and goods. Higher taxes on the rich could finance greater redistribution of income—for example, by means of an earned-income tax credit (EITC) that goes to middle-class as well as poor Americans. Yet another possibility could be greatly expanded direct or indirect public employment, paid for out of taxes on the rents that go to the rich. One beneficial side effect of greater public employment could be tight labor markets that raise the pretax incomes of private-sector workers.
    Other methods would rely less on taxation and redistribution and more on structural changes in the labor and capital markets. Tighter labor markets, produced by the combination of the restriction of unskilled immigration and the growing ratio of retirees to workers, could raise market wages at the bottom, forcing affluent Americans to pay higher wages for service workers. Another alternative to redistributive taxation would be increasing the number of Americans who own shares in highly automated industries—either directly, through some form of universal shareholding, or indirectly, through the nationalization of some industries and the public provision of goods or the use of profits from government sales to reduce tax burdens on the majority. These and other methods to enlarge the middle class are radical but may be worth considering, if the goal is to prevent the good of productivity growth from generating the evil of plutocracy.
    THE NEXT SOCIAL CONTRACT
    In addition to devising new forms of stakeholder capitalism and utility finance, Americans need to construct a new social contract that is suited to the workforce and economy of the twenty-first century.
    The social contract that crystallized after World War II combined four different, rival approaches. The social-insurance programs, such as Social Security, Medicare, and Medicaid, were administered by government and paid for chiefly by payroll taxes. Coexisting with this system of social insurance was another system of tax-favored employer-based benefits, of which the most important were employer-provided health care and employer-provided pensions. To complicate matters further, beginning in the 1970s, two other approaches were added: tax-favored private accounts—for retirement savings and other purposes, including health care—and tax credits for welfare purposes—of which the most important were the EITC, a subsidy to low-wage workers, and the child tax credit.
    Changes in the economy and society have undermined all the elements of the American social contract other than simple, straightforward social-insurance programs. The employer-based health-care system is crumbling, because the rising costs of health-care provision in the United States have caused fewer and fewer employers to offer health care. Employer-based pensions are even further along the road to extinction, having been replaced either by nothing at all or by tax-favored individual retirement accounts like 40l(k)s or IRAs. Tax credits are popular among politicians, because they allow transfers to be hidden in the tax system rather than visible among direct appropriations, but a tax code riddled with tax credits must raise revenue with higher nominal rates, which generate political opposition.
    If the system of employer-based benefits collapses entirely, the alternatives, if the safety net is not simply to be reduced, are an expansion of social insurance or an expansion of tax-favored private accounts or tax