Tax the Plutocrats!
by Gar Alperovitz
The Nation magazine, January
It's time to confront the central obstacle
blocking a new progressive politics: the Democratic Party's abject
fear of the truth that new taxes are going to be needed if the
party is ever to offer -- and finance -- a dramatic program capable
of mobilizing large numbers of working Americans, white, black
and brown. The way forward is to go on the offensive by sharply
delineating a strategy targeting America's plutocratic top 1-2
percent elite, plus the corporations they largely own. Changes
in income and wealth patterns in recent years make it possible
to do this without simultaneously alienating middle-income and
middle-class suburban voters.
A progressive program worth fighting for
would begin with fixing-improving, not reducing-Social Security;
it would move on to prescription drugs, major reform of the healthcare
system, support for broad-based college tuition assistance, serious
daycare provision, an expansion of the earned-income tax credit.
Public transportation, environmental and other infrastructure
needs are also huge, between $60 billion and $100 billion a year
in recent estimates. A serious effort might also add some tax
relief for middle- and low-income families.
The first step is to stop compromising
at the outset, thus eliminating any hope of offering something
powerful that we can mobilize around over the long haul. Progressives
must challenge the idea that the United States, the richest nation
in the world, must always be the poor sister among the advanced
nations- that our nonmilitary public sector, at 29.7 percent of
GDP, must always lag behind Britain's (35.8 percent), Germany's
(43 percent), France's (44.8 percent) and, of course, that of
countries like Sweden, at 50 percent.
Most Democrats have been afraid to demand
such a program- and for good reason: They have been unable or
unwilling to answer the obvious question of where the money will
come from. In the near term, deficit spending is a reasonable,
indeed, inevitable option-both to move the economy out of the
recession and to solve pressing public problems (beginning with
the $67 billion state revenue shortfall. Ultimately, however,
progressives must confront the tax issue.
Until recently, the Democratic Party,
as a party, has been almost totally silent on taxes-cravenly so:
Twenty-eight House Democrats and twelve Democratic senators voted
for the Bush tax cuts. For the most part, the party has been on
the defensive -- reacting, after the fact, to each new Bush taxcutting
initiative. Even as Democrats fussed over how to respond to the
last Bush offensive, the Administration has revved up its new
campaign for greater elite and corporate tax cuts- and, amazingly,
is now arguing that the poor are undertaxed. (Just ignore Social
Security taxes, the most regressive part of the system, ignore
the huge redistribution of income in favor of the rich in recent
years, scrap all thought of capacity to pay as an element in tax
If Democrats are unable to redefine the
long-term politics of taxation, they will always be on the defensive,
trying to play catch-up in response to each new right-wing initiative.
To be sure, some members of Congress have put together a short-term
stimulus package involving tax rebates, and some liberals have
urged rescinding the Bush top income and estate reductions. But
even if this were done, it would only take us back to where we
were when Bush took office-which, in turn, would provide little
capacity for Democrats to go on the offensive with a positive,
longer-term program capable of exciting the basic Democratic constituencies.
New Democrats are probably right that
it is politically impossible to tax the white suburban middle
class much further. They are wrong, however, to suggest that this
is the end of the story. The place where the money can-and must-be
found is where it is concentrated: at the very top and with the
corporations. This also defines a sharp and very clear political
target-one that ultimately puts the other side on the defensive.
There has been an extraordinary upward
redistribution of income in recent decades, especially at the
very top: The top 1 percent garnered almost 15 percent of the
nation's income for itself in 1998-up from just over 8 percent
in 1980. This is more income than was received by the more than
100 million people in the bottom 40 percent of the population
taken together! _
Currently, the top marginal tax rate is
38.6 percent, scheduled to drop to 35 percent by 2006. The dramatic
capacity of elites to take care of themselves is etched in the
changes they have secured over the past half-century. The top
marginal rate was 91 percent to and through the Eisenhower years,
indeed continuing up to 1964; 70 percent from 1965 to 1981; 50
percent from 1982 through 1986 (for the first Reagan Administration).
If those earning $1 million or more in 1999 (a recent year for
which data are available) were to face the same effective rate
as top elites faced in the mid-1950s, tax revenues could increase
by $130 billion (this would involve raising taxes on only slightly
more than one-tenth of 1 percent of all households).
In the Eisenhower era, corporations paid
an average 25 percent of the federal tax bill; they paid only
10 percent in 2000 and 7 percent in 2001. The effective tax rate
on corporate income amounted to 47 percent in 1960; it is only
35 percent today (before tax credits). Closing the most egregious
shelters and returning to the 1960 tax rate could increase annual
revenues by $110 billion.
A progressive political strategy that
sharply defined the difference between the very top of the income
and wealth distribution and the vast majority could benefit the
bottom 98 percent of society-i.e., those with incomes of less
than roughly $200,000.
The conventional wisdom is that you can't
tax the rich. However, something profound has happened to America
in recent years. The super-elite-the people Kevin Phillips and
Paul Krugman now term the new 'plutocracy"-live in a very,
very different world from most Americans, and in a radically different
culture. It is a world where homes cost $5-10 million and where
$5,000 grills, $3,000 alligator-skin shoes, $17,500 Patek Philippe
wristwatches, $63,000 Lexus LX470 sport-utility vehicles and $
14,000 Hermes Kelly handbags are commonplace. At the height of
the 1998-99 stock market, Phillips observes, "vanity and
consumption moved toward a new post-Veblen fulfillment.... Behind
an increasingly Latin American array of gates, guards, walls,
and distance, the scarcely visible displays included helicopter
delivery of meals from one's favorite Manhattan, Los Angeles,
or Florida restaurant...." A tour guide he cites notes: "Some
trees now gracing Hamptons estates have been driven down from
the Pacific Northwest in refrigerated tractor-trailers, and some
have been planted with the aid of military-size Sikorsky helicopters
to obviate the necessity of rutting the lawns with wheel tracks."
Most people have not caught up with what
Krugman terms "the tectonic shills" that have taken
place: "The rich have always been different from you and
me, but they are far more different now than they were not long
ago-indeed, they are as different now as they were when F. Scott
Fitzgerald made his famous remark." In the past, he observes,
we were "a middle-class society. But that was another country."
The world of the new plutocracy is also
a world of routine corruption and side deals in which millions
of dollars are casually shifted into the pockets of the elites
as part of "business as usual" corporate practice. The
retirement package that GE's Jack Welch negotiated included an
$86,000-a-year retainer for consulting services, use of GE corporate
aircraft, a Manhattan apartment (including wine, laundry services,
newspapers, flowers, condominium fees, cook, wait and housekeeping
staff, postage and restaurant charges in the building, plus tickets
to sporting and cultural events.
Polls strongly suggest that the plutocracy
is vulnerable to challenge. In 1998 Gallup found that 63 percent
agreed with the statement that "money and wealth in this
country should be more evenly distributed." Roughly seven
in ten also complained that "the rich just get richer while
the poor get poorer." Even in the period shortly after 9/11,
when patriotism obscured many other concerns, the number who held
this view fell only one percent, to 69 percent. Recent Harris
polls have regularly found that an extraordinary 80-87 percent
of the public believe big companies have "too much power
and influence in Washington." The Enron and related accounting
scandals only added to long-standing and deeply rooted public
distrust. As Century Foundation senior fellow Ray Teixeira has
shown, we have reached a nadir in public opinion of large corporations:
One 2002 poll found that only 15 percent felt a "great deal"
or "quite a lot" of confidence in big business- the
lowest number since pollsters started asking the question in 1986.
Another showed that 38 percent saw big business as the "biggest
threat to America's future," up from 22 percent as recently
as October 2000 and again the highest level ever recorded for
this question (asked since 1965).
Jeffrey Garten, dean of the Yale School
of Management and a former Under Secretary of Commerce, follows
the data closely. Hardly a populist, Garten believes citizen anger
is ultimately likely to produce a backlash "as radical and
as prolonged as the backlash against unbridled corporate power
that took place during the first forty years of this century."
Two issues need to be sharpened over time:
The first is 'public need versus private greed." The second
is simple fairness. A comprehensive, long-term tax program focused
on the plutocracy and corporations and that aimed to go on the
offensive might include:
* Repeal of the Bush tax cuts at the top.
* A return, ultimately, to the 50 percent
top marginal tax rates of the first Reagan Administration.
* Corporate taxes equivalent to those
in force during the Nixon Administration.
* A wealth tax of at least 1 percent.
Note especially the tax on wealth. Wealth
is far, far more concentrated than income. A mere 1 percent of
Americans owns just under 50 percent of financial wealth; a mere
5 percent owns almost 70 percent of financial wealth. Americans
with incomes of more than $1 million (roughly 0.1 percent of all
taxpayers) made more money from stock sales than the rest of the
nation combined in recent years.
Most Western European nations tax wealth-in
Sweden, the highest annual rate is 3 percent; at the low end of
the scale is Switzerland, with a tax of only one third of a percent.
The United States, however, for the most part only taxes the kind
of wealth most people own-their home. Moreover, we tax the total
value of the home even though most people actually own only a
part of the house-i.e., their net property value after subtracting
the mortgage amount they owe. We simply do not directly tax ownership
of the kind of wealth which is concentrated in the hands of the
plutocracy: stocks and bonds.
Repealing the Bush tax cuts would return
$86.5 billion from the top 5 percent annually when fully phased
in-or close to $800 billion over ten years if, as is likely, the
tax cut is made permanent. Estimates by Brendan Leary of the University
of Maryland suggest that returning to a tax structure similar
to that of the first Reagan Administration could potentially capture
an additional $90 billion from the top 2 percent. If corporate
tax rates were returned to Eisenhower levels, tax revenues could
increase by roughly $110 billion. A I percent tax on wealth (with
a $1 million exemption) could bring in $90 billion a year. (A
3 percent wealth tax with a $500,000 exemption could generate
up to $290 billion.) A long-term progressive strategy would also
aim to build new ways to structure the ownership of wealth-for
example, by offering Individual Development Accounts, through
which the government would directly match the savings of the poor;
and by introducing government-funded $5,000 capital grants at
birth that, with additional annual federal contributions, could
build a capital fund of roughly $50,000 for every individual by
age 18. Wealth-holding to benefit "small publics" is
also important: For example, federal legislation has helped create
11,000 Employee Stock Ownership Plans and related efforts, many
of which are moving toward substantial, indeed, often majority-worker
ownership of significant assets in their firms.
The key to winning acceptance of a bold
program is to build support-rather than simply react to polls
that register "something" about public attitudes before
and in the absence of a serious effort to dramatize an alternative.
Conservatives have understood this all along: Ten years ago few
would have believed privatization of Social Security was an idea
that could ever be taken seriously-or, for that matter, more recently
Bush's deficit-producing tax cuts for the rich. Conservatives
created what support such ideas have by taking a clear stand and
then arguing forcefully for it.
A progressive strategy that went on the
offensive to mobilize broad support would put those who attempt
to protect the plutocracy and the corporations on the defensive.
It would also help redefine the political spectrum as a whole:
So long as the Democratic Party fails to take a clear economic
stand, "faux-populist" conservatives will exploit cultural
and racial issues to divide and conquer the majority. The bottom-line
question to confront, however, is: Over the long haul is there
any other way to achieve the policies most progressives in their
hearts know are right?
Gar Alperovitz, Lionel R. Bauman Professor
of Political Economy at the University of Maryland, is working
on a book on progressive change in the twenty-first century. He
is the author of The Decision to Use the Atomic Bomb (Knopf) and,
most recently (with Thad Williamson and David Imbroscio). Making
a Place for Community (Routledge)