Our Unequal Democracy
Economic and political inequality
reinforce each other
and compromise democracy.
by Christopher Jencks
The American Prospect magazine,
When the Constitutional Convention was
held in 1787, one of the participants' major worries was that
a democratic government based on majority rule could pose a threat
to minorities. They were especially worried that majority rule
could encourage a largely landless electorate to expropriate the
property of people like themselves. They thus adopted a system
of divided government, replete with "checks and balances"
and indirect elections, to minimize this risk. But while the Constitution
ensures that the federal government will move slowly, it cannot
prevent change forever. As the government grew, for example, the
Constitution was amended in 1913 to permit an income tax.
Nonetheless, the Founders' fear that democracy
would allow the poor to expropriate the property of the rich has
never materialized. Explaining this fact is one of the greatest
puzzles of American politics. The logic that led the Founders
to see majority rule as a threat to wealth was certainly impeccable.
Indeed, American social scientists still rely on models in which
voters are expected to behave in exactly the way the Founders
feared. These models require only one assumption: that voters
dislike paying taxes. If that is the case, candidates should be
able to increase their share of the vote by promising to raise
tax rates for the rich, of whom there are few, while lowering
tax rates and offering benefits for the rest of the population,
which is far more numerous.
However, as incomes in the United States
have become more unequal, so has political influence. The most
affluent Americans are not only able to avoid high taxation on
themselves that might in turn yield equality-enhancing social
investments, they also enjoy disproportionate political influence
generally. As a consequence, a vicious circle of economic and
political inequality allows the well-off to dominate agendas and
dissuades others from expecting much from politics. This Prospect
special report explores several aspects of this conundrum.
The Congressional Budget Office (CBO)
is now the best source of data on income distribution in the United
States. According to the CBO, the richest 1 percent of all American
households received more pre-tax income than the poorest 40 percent
throughout the late l990s. Federal taxes reduced these rich households'
disposable income by 33 percent. Raising their effective tax rate
from 33 percent to 41 percent would have allowed Congress to eliminate
all taxes on the poorest 40 percent, raising the incomes of these
millions of families by about a tenth.
Normally a policy that benefits 40 percent
of potential voters while harming only 1 percent would be a sure
political winner. In reality, however, tax policy has been moving
in precisely the opposite direction. The richest 1 percent (hereafter
just "the rich") doubled their share of pre-tax income
from 9 percent in 1979 to 18 percent in 2000. If we adjust for
inflation, their average household income rose from an annual
$454,000 to $1.3 million. Because the federal tax system is moderately
progressive, income increases of this magnitude should have raised
the effective tax rate for rich households. Taxing the rich should
also have become more politically attractive, as raising rates
at the top allows Congress to raise more money without making
any new enemies. But that was not what happened. In 1979-80, before
the first tax cut of the Reagan administration, federal taxes
reduced the disposable incomes of the rich by 36 percent. By 1999
that figure had fallen to 33 percent. The Bush tax cuts will continue
Why does tax policy increasingly favor
the rich? Conservatives might argue that Congress just recognized
that taxing the rich would reduce investment, discourage entrepreneurship,
and slow long-term economic growth. But even if we assume that
most legislators believe these arguments, Congress is not notorious
for giving up short-term political advantages in order to do what
is best for the country. A plausible answer must therefore explain
why taxing the rich would have reduced legislators' chances of
The most obvious explanation is that legislators
were becoming ever more dependent on large campaign contributions.
As the rich got richer in the 1980s and '90s, they were increasingly
willing and able to provide such contributions. Candidates need
money to run for office. If newcomers cannot appeal to donors
who can write big checks, their chances of success are slim. If
incumbents alienate big-money donors, their chances of facing
a well-financed challenge increase. Legislators who catered to
the interests of the rich therefore became more numerous. This
logic applied to Democrats as well as Republicans.
Candidates raise more money from special-interest
groups partly because government has grown, so more interest groups
have a big stake in election outcomes. The rich have more to spend
because the rich now get 18 percent of the nation's income instead
of 9 percent. That means a candidate can expect carefully selected
telephone calls and fat-cat dinners to raise twice as much as
There is still some controversy about
the degree to which rich donors' contributions directly affect
legislators' behavior. Legislators who get big contributions from
a specific interest group certainly tend to vote the way the group
wants them to vote. But interest groups give mainly to legislators
who already share their views, not to legislators whose views
they hope to change. Rather than buying votes, interest groups
may just be increasing the chances that those who vote their way
will get elected over and over. Still, legislators also know that
their voting record will affect their chances of attracting money
from well-heeled groups. If a congressional committee is voting
on legislation that affects an industry's profits, and if committee
members know that the industry rewards its friends, those members
would have to be saints for this knowledge not to affect their
votes on low-profile questions that the general public will never
A big contribution also often ensures
that a legislator will meet with the contributor to discuss the
contributor's views. Some skeptics claim that this kind of access
does not change legislators' votes. But access clearly influences
what legislators-and, importantly, their staffs-hear and know.
Such information may not affect the way legislators vote on high-profile
issues where both sides flood Congress with information, but most
issues are settled in an information vacuum. When that is the
case, access can often determine what legislators believe, and
what they believe may well determine what they do. There is also
strong evidence that big contributions influence the amount of
time and energy that legislators and their staffs devote to a
specific issue. A legislator's willingness to spend time on an
issue can, in turn, affect whether Congress does anything at all.
Anyone who wants to understand how money
influences the legislative process should read Showdown at Gucci
Gulch by Jeffrey Birnbaum and Alan Murray, which describes the
evolution of the Tax Reform Act of 1986 as it worked its way through
Congress. Five years earlier, President Reagan's 1981 tax legislation
famously turned into a bidding war between Republicans and Democrats
to offer tax preferences to business interests. The 1986 legislation
was meant to be a tax simplification and base-broadening measure,
but the politics of base broadening led to lowering taxes on the
poor and raising taxes on the rich. This legislation did not pass
because powerful outside interests favored it. Indeed, they fought
hard to preserve their privileges, and in many cases they succeeded.
But a few powerful individuals in the White House, the Treasury
Department, and Congress wanted to restructure the tax system,
and the compromise that emerged was moderately progressive.
The rich can influence legislation indirectly,
too, by shaping other people's ideas about what is desirable and-perhaps
even more important-their beliefs about what is possible. During
the 19505 and '60s, the East Coast "establishment" that
dominated both parties saw itself as anticommunist but socially
progressive. Even corporate leaders often gravitated to the political
center, supporting groups like the Committee for Economic Development.
In this respect they resembled today's European corporate leadership.
The East Coast establishment's conception of "progress"
was shaped by the trauma of the Great Depression, by the retrospective
success of the New Deal, and by the Second World War. In 1964,
when the anti-Goldwater landslide handed the Democrats a liberal
majority, there was broad consensus that progress meant broadening
the welfare state to include medical care, deepening it to help
the poor, and ending "separate but equal" in the South.
Those who opposed this agenda, while numerous, had no coherent
alternative, and they came across to much of America as defenders
of a dying social order.
A decade later, of course, the liberal
consensus was unraveling, a new conservative agenda was taking
shape, and the right had begun its campaign to take back control
of the government. Money poured into conservative think tanks
and magazines, changing what opinion leaders, journalists, and
legislators read and heard. In due course, conservatives also
began to buy or create newspapers and radio and television shows
that influenced what ordinary voters read, heard, and saw. All
of this required money. As the share of income going to the rich
grew, they could afford to hire more and more people to disseminate
Can our political system reverse the growth
of economic inequality? Well, it did so once before.
The big unanswered question is now whether
this cycle can be reversed. The optimistic view, to paraphrase
Abraham Lincoln, is that you can fool most of the people some
of the time and some of the people most of the time, but eventually
most voters figure out what serves their interests. Yet there
is also another possibility.
The share of income going to the rich
today is roughly the same as it was between 1913 and l929. The
share of income going to the rich was cut in half between l929
and 1959, with most of the decline coming between l929 and 1945.
It stayed low during the 19605 and '70s. It has climbed steadily
since 1980. The pessimistic view is that the present level of
inequality is the "normal" condition of a big, diverse
country like the United States, at least when it pursues laissez-faire
economic policies. According to this view, the years between l929
and 1959 were an aberration.
How might we explain this normative change?
The Depression destroyed a lot of wealth. World War II compressed
the distribution of earnings, partly because it created an acute
labor shortage, driving up wages at the bottom, and partly because
the government used wage and price controls to hold down inequality.
Labor unions were a powerful political force postwar, and they
helped maintain the wage distribution that had been created during
The Depression was also important because
it showed millions of middle-income Americans that anyone could
lose their job and that unemployment need not be evidence of laziness.
The war threw together people from all walks of life in situations
where character counted for more than education or family background,
and it exposed them all to an institution in which nobody hoped
to get rich. Men advanced through the ranks by risking their lives
in dangerous places, and generals were paid like civil servants,
not corporate chieftains.
The passing of the generation that came
of age during the 1930s may well have played a role in the unraveling
of these social norms. In this issue, Theda Skocpol traces the
way in which labor unions and cross-class membership organizations-like
the PTA, The American Legion, and the General Federation of Women's
Clubs-declined while professionally managed interest groups-like
Common Cause and AARP-expanded. One result was that the skills
needed for political action became increasingly concentrated in
the upper-middle class. Labor unions also declined, widening class
differences in political participation. Harold Meyerson's article
describes how the Los Angeles labor movement prospered by mobilizing
Mexican immigrants, but his portrait of quiescent Houston is more
representative of the Sun Belt-and the nation. The main exception
to this pattern has been the rise of evangelical churches, which
often bring together people from diverse economic backgrounds.
But these churches bring their members together around a conservative
social agenda, not an egalitarian economic agenda.
But there also seem to be deeper institutional
and cultural forces at work here. Studies by economists like Thomas
Piketty, Emmanuel Saez, and Tony Atkinson have shown that from
1913 to 1980, the share of pre-tax income going to the rich followed
much the same trajectory in Great Britain, Canada, France, and
the Netherlands as in the United States. After 1980, the share
of income rose sharply in Australia, Great Britain, Canada, New
Zealand, and the United States, but not in France, the Netherlands,
or Switzerland. This divergence could mean that Great Britain
and the United States, where the elections of Margaret Thatcher
and Ronald Reagan led to a big change in public rhetoric, influenced
all the English-speaking countries. Or it could mean that all
the English-speaking countries had been deeply influenced by John
Locke and Adam Smith.
The difference between the English-speaking
nations and western Europe was not just a matter of making different
policy choices. Wages are more equal in western Europe than in
the English-speaking nations, partly because European governments
make unionization easier and union wage settlements often apply
even to non-union workers. But union contracts seldom cover the
top 1 percent of the income distribution. Rather, European elites
operate in a different social and political environment. If a
European firm wants to restrain wage growth among its unionized
workers, it knows that giving big raises to top executives will
make demands for wage restraint among ordinary workers less palatable
both to its workers and to the general public. If social norms
of this kind play a major role in setting wages for those near
the top of the distribution, it becomes easier to see how the
elections of Thatcher and Reagan could have set off a feeding
frenzy among the rich. Once the rich realized that their critics
were on the defensive, they began demanding tax cuts as well.
One might hope that rising levels of education
would help voters understand their economic interests, but the
evidence on this score is discouraging. The correlation between
higher income and voting Republican has risen as the Republican
Party has become more homogeneous, but it is still relatively
weak because voters care more about issues like race and abortion
than about economics. More than half the low-income voters who
might benefit from electing a Democratic senator or president
do not bother to vote at all, a troubling reality explored here
in Richard Freeman's article.
All of this suggests that the American
political system may not be capable of reversing the growth of
economic inequality. On the other hand, that is exactly what sensible
critics would have concluded in 1928, and they would have been
CHRISTOPHER JENCKS is the Malcolm Wiener
Professor of Social Policy at Harvard University's John F. Kennedy
School of Government and one of The American Prospect's founders.