The 1 percent continue to capture virtually all of the income growth in the country, while the average incomes of the 99 percent continue to fall.

And Americans know it. In a January Pew poll, 92 percent report that their incomes are sinking or treading water. This Occupy reality increasingly sets the frame for our political debate, with leaders of both parties adopting populist rhetoric, acknowledging that making this economy work for working people – the sinking “middle class” – is the central question of our day.

President Obama’s State of the Union address put down a Democratic marker in this debate. Sen. Bernie Sanders published a summary from the populist wing.

Now a new report by a commission convened by the Center for American Progress provides a leading indicator of where Hillary Clinton is heading. CAP was founded by John Podesta, now girding for a major role in the Clinton campaign. It is directed by Neera Tanden, Hillary’s issues director in the 2008 campaign. The Commission was chaired by Larry Summers, former Treasury Secretary under Bill Clinton nearly two decades ago.

The lengthy report – with a title, “Report of the Commission on Inclusive Prosperity,” that reflects its leaden prose – explicitly pitches itself as an effort to update Putting People First, the platform of Bill Clinton’s first race in 1992, to meet the challenge of inequality. Mainstream Democrats are now tacking to meet populist winds; this is a good measure of how far those close to Hillary are prepared to go.

The document is divided into analysis and policy recommendations, with separate appendices for U.S. and U.K. policies. The critique is often stronger than the remedies. The commission clearly wants to outline the scope of the challenge, while remedies presumably are cribbed by political sensitivities.

Analysis: We Need Fundamental Changes

The commission accepts that the new inequality is structural, not cyclical. Growth is necessary, but not sufficient. In fact, the new inequality saps the demand vital to sustain robust growth. While it recycles the traditional remedies of better education and training, more trade, middle-class tax breaks, and income subsidies for low-wage workers, the commission realizes these are not sufficient.

Large remorseless trends – globalization, technology – are described as major causes. But the report explicitly says that policy matters – “there is nothing predetermined about a country’s abilities to navigate these trends and ensure shared prosperity for its people.” This isn’t fate or inevitable. It is about policy and power.

This should lead naturally to an analysis of how and by whom the rules were rigged to benefit the few and sink the many. That would involve harsh indictment not only of the Reagan years and trickle down voodoo, but of a Clinton administration that championed corporate trade and tax policies and financial deregulation, went AWOL on unions and antitrust, and signed off on many of the most egregious tax breaks for the very wealthy.

Instead the report largely adopts a passive voice. Stuff happened. Globalization puts pressure on wages and weakens manufacturing. Technology threatens mid-level jobs. “Institutions that had previously worked to mediate rising levels of inequality” – e.g. unions – “have been weakened.” Corporations “have become less committed to their workforces and their communities.” Vital investments weren’t made. Banks were deregulated. Being a New Democrat means never having to say you’re sorry.

But the analysis does argue that fundamental changes must be made if the new inequality is to be addressed. These include an incomes policy that lifts the floor, empowers workers, and curbs CEO excesses, and major public investment in rebuilding infrastructure, R&D, new energy, and education and training.

The commission also focuses on the need to reform corporate governance and crack down on tax avoidance. Financial instability must be curbed. Trade accords must better protect workers, consumers and the environment and take on currency manipulation of mercantilist nations. Taxes must be more progressive. This is a call for activist government to set the rules so that the economy will work for the vast majority.

Remedies Muted

The commission offers a range of policy remedies, some new and some bold. Not surprisingly, however, the trumpeting of our troubles is muted when it turns to answers. This is particularly true of the appendix on U.S. Policy Response, which is both cautious and vague – in stark contrast with the punchier appendix on U.K. policy.

Income policy

The commission’s U.S. policy response calls for lifting the floor under workers – raising the minimum wage, guaranteeing paid sick days, paid parental leave, paid caregiving leave and paid vacations, enforcing overtime, protecting part-time and contingent labor. The commission makes the case for expanding affordable childcare, without many specifics. The sensible U.K. recommendation guaranteeing wraparound (8-6) childcare through the local school is missing, as is the sensible recommendation of preferring living wage employers through government procurement preference, tax breaks, and mandating corporate reporting on whether they pay a living wage.

The commission is also surprisingly strong on unions, calling for labor law reforms to empower workers to organize and bargain collectively, including card check against lawless employers, and mandatory arbitration of first contracts. It even suggests mandatory works councils – elected bodies of employees – with rights to information and consultation.

And it takes on excessive pay at the top, describing how our executive compensation policies (which grew dramatically because of tax breaks passed under Clinton) pervert corporate policies. The commission pushes for profit-sharing plans that would “compensate a broad base of workers – not just top executives.” It also would end the tax break for CEO bonuses. It suggests the Securities and Exchange Commission crack down on executives cashing in on corporate stock buybacks.

In contrast, the U.K. proposal is even bolder. It would require companies to publish not only the ratio of the pay of top earners to average employees (required under the Dodd-Frank reforms but to date buried by the SEC), but the pay packages of 10 highest paid employees. It would put employee representatives on executive remuneration committees, and require prior approval by shareholders of all remuneration packages.

Public Investment

The commission embraces the need to invest in rebuilding America’s decrepit public infrastructure. Its recommendation – an additional $100 billion annually for 10 years – is far from adequate, but is greater than that proposed by President Obama. Oddly absent from the policy recommendations – and not emphasized in the analysis – is a bold agenda to deal with climate change or to capture the lead in the green industrial revolution. In contrast, the U.K. document calls for a climate change adaptation plan, an investment plan on moving to clean energy, a green investment bank and public investment in energy efficiency.

Youth Unemployment and Public Jobs

Given the devastating effects of unemployment on the young, the commission not only touts national service programs, but recommends creating a mandatory program to automatically increase public service jobs when youth unemployment is high. It doesn’t adopt a guarantee of a job for every person willing to work, but this creative idea is surely a step in the right direction. (In contrast, the U.K. appendix calls for a “guaranteed paid starter job for every young person out of work for over a year,” with acceptance mandatory or loss of benefits).

Fair Taxes

The commission recommends short-term middle class tax relief — a tax credit for one-third of tax filers for a short period of time, clearly a token for the coming political debate. It calls for a more progressive tax code, but not for raising tax rates on the wealthy, taxing income from wealth at same rates as income from work, raising the estate tax or levying a tax on financial speculation. Instead, as President Obama recommended in his State of the Union, it recommends eliminating the subsidy to inherited wealth that allows heirs to avoid paying capital gains taxes. A step, but a very modest one, to a more progressive tax code.

On corporate taxes, the commission censors multinationals for dodging taxes, noting that deferral of taxes on income reported as earned abroad allows corporations to avoid about $80 billion a year in taxes they owe. Yet rather than calling for an end to deferral, the commission argues only for trimming one of the ways corporations game the system.

Curbing Wall Street

The commission accepts that the financial system has become a “source of risk,” and an important driver of rising inequality. But its reforms are markedly timid.

The “first priority” is “effective implementation” of reforms already passed – the Dodd-Frank legislation. The commission suggests that big banks need far greater capital requirements, but makes no recommendation. Stronger regulation of shadow banking is necessary, but the commission only offers a modest proposal for “buffers” for money market funds. It decries the absence of prosecutions of individuals for misconduct, but offers no remedy. It calls for curtailing settlements without admissions of guilt, and would require clawbacks for bonuses if malfeasance is later discovered.

No mention is made of the need to strengthen the independence, strength and budgets of the regulators, or to end the revolving door between Wall Street and Washington. Breaking up the big banks, supporting state banks, creating a green investment bank or an infrastructure bank are not on the agenda.

Education and Training

The commission is strong on the need to invest in education and training. Interestingly, it ignores the raging debate over testing, charter schools and standards, adopting instead the progressive focus on vital investments that go unmet.

It calls for expanding early childhood education and for greatly expanded apprenticeship programs without specifying cost or scope. It recommends making “higher education virtually free at a community college or a public four-year college.” It touts the Australian model of providing every student with funds sufficient to pay tuition and fees at a public university, money that is repaid as a percentage of income over a limited time – 20 years or so. The debt would carry no interest, but would be indexed to inflation. Low-income earners could put off repayment.

Hillary Meets Occupy

The commission report, for all its limits, marks a sea change in the mainstream debate. Its ideas and arguments are not new; many have been proposed for years by progressive economists. What is different, as Robert Kuttner has argued, is not what is being said, but who is saying it. The mainstream has been mugged by reality.

Thomas Edsall argues, “If policies grounded in ‘inclusive capitalism’ become central to the party platform, it will mark the party’s strongest commitment to the economic interests of working and middle-class Americans since Franklin Roosevelt’s New Deal.” (He excludes Johnson’s War on Poverty as aimed at the poor.) Perhaps, although that is a low bar. In scope and force, the commission agenda is a far remove from the New Deal.

Nor is it likely that Hillary will espouse the bolder recommendations. The commission report may well be less a reflection of her position than a yardstick against which to measure it.

But the world has changed. The economy has been rigged to work only for the few. Americans increasingly understand that. The populist temper exposed by Occupy continues to rise. Politicians and mainstream economists are scrambling to respond. The commission report is a marker of how far they have come – and how far they have yet to go.

Originally published by Campaign for America's Future

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