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A recent video showed Mitt Romney stating that nearly half of Americans don't pay federal income taxes and believe they're entitled to government support.



His remarks highlighted what's been going on in politics for years, a widening divide between Republicans and Democrats over what role government should play.

Veteran journalist Hedrick Smith examines the roots of our current economic and political problems in his new book, "Who Stole the American Dream?"

On the roots of the U.S. becoming 'Two Americas'

"Real changes took place in America since the 1970s, and we've been having a lot of arguments about the middle class today. I think that we're looking for short-term fixes and I don't think that we're going to get a smart fix in this country until we understand the roots of the problems. Frankly, I found that the roots go back to the 1970s. And I hate to tell you, I learned a lot of stuff. And there's much more power in that history ... under the Democrats and Jimmy Carter, big things took place before Ronald Reagan came into power."

On why 1978 heralded a key shift in America

"Seven years before [1978], a guy named Louis Powell wrote a memo two months before he served on the Supreme Court. He was concerned [about] what was happening to free enterprise, which he saw as under assault from the environmental movement and regulations that were brought, and he tried to rally business leaders.

Nixon thought that you had to control the excess of capitalism. But the political pressures from the middle class and average Americans was so strong that Nixon had to respond. I think we've forgotten how powerful the middle-class movements were in the 1960s and how closely political power of the middle class was linked in the prosperity and well-being of the middle class."

How lobbyists in Washington changed the culture in 1978

"Organized labor got snuffed out by lobbying. Business got the 401K program written into law. They got the ceiling on interest rates removed. And business rolled Jimmy Carter on the tax code. Carter had planned to eliminate tax loopholes for the wealthy, but in the end it did the exact opposite. The rich came off much better than the lower middle class. In other words, business showed its muscle. It was a game changer.

I remember talking to Arthur Levitt, the head of the American Stock Exchange. He said to me, business found out what it wanted, it got a taste of power and we were in a new era of lower taxes, a policy tilt that's favorable to business leadership and changes in the tax code that hurt the middle class. And that's been going on for the past 30 years."

On the effects on middle class in the 80's and 90's

"Part of what happened is that the liberal movements were successful and they got what they wanted, but the enforcement of legislation is much more complicated, so things ran out of steam. The labor movement became weakened by some of these same business interests."

Excerpt for Who Stole the American Dream? by Hedrick Smith

Guest:

Hedrick Smith, author of the new book "Who Stole the American Dream?"