Gar Alperovitz
Published in The
Nation, January 27, 2003
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 offe—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, and 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.
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-and the party as a whole has
been unable to move beyond its own internal stalemate. As a result
the party is always on the defensive-reacting, after the fact, to
each new Bush tax-cutting initiative. Even as Democrats fuss over
how to respond to the last Bush offensive, the Administration is
already revving up a campaign for greater elite and corporate tax
cuts-and, amazingly, is about to argue 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 policy, etc.)
If Democrats are unable to redefine the 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
are trying to put together a short-term stimulus package involving
tax cuts, 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, from 1949 and continuing up
to 1964; 70 percent from 1965 to 1981; 50 percent from 1982 through
1986 (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, on average, 25 percent
of the federal tax bill; they paid only 10 percent in 2000 and 7
percent in 2002. 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 American society-i.e.,
those with incomes 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 Hermès Kelly handbags are commonplace. At the
height of the 1998-9 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
restaurants." 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 shifts" 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 which G.E.'s Jack Welch negotiated included
an $86,000 a year retainer for consulting services, use of G.E.
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 10 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 an extraordinary 80-85 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 Ruy 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 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 which 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 over $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 1 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 which, 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 towards 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 that privatization
of Social Security was an idea which 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 which 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 re-define
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
and a Principal of The Democracy Collaborative 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).
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