Tax cuts for the rich have hurt the economy and democracy
Here’s a statistic that encapsulates the political moment we’re in today: The 400 richest Americans now have as much wealth as the bottom 62 percent of us. And just the three richest of those 400, Warren Buffet, Bill Gates, and Jeff Bezos, own as much wealth as the bottom half of Americans. Let that sink in a moment.
These are statistics we might expect to apply to the most backward and corrupt of Third World dictatorships, not to the country that once boasted the largest and most prosperous middle class in the world. America has changed mightily over the past few decades, and not for the better.
It’s easy to think of income inequality as somehow inevitable in a market economy— because that’s the dismissive story line that both Democratic and Republican politicians have used since at least the 1980s to more or less excuse the remarkable transition that’s underway in this country. But there is nothing inevitable about income inequality. We now have the greatest disparity of income and wealth in U.S. history for one simple reason— the politicians in our nation’s capital have rigged it that way.
Which is why we need new leadership and a new direction in Washington, D.C.
Income inequality will be one of the top three issues in the 2020 presidential campaign, and with good reason. Income inequality is bad for the economy and even worse for our democracy and it has been fueled for the past 40 years by a devastating bipartisan consensus to cut taxes on wealthy individuals and corporate America.
Since the 1970s, conservatives have peddled their economic snake oil, known as supply-side economics, which posits that reducing taxation on the wealthy will unleash waves of new economic investment, generating economic growth and higher government revenues in the process. It’s the ultimate win-win, except for the fact that economics doesn’t work that way and never will. Supply-side economics provides lackluster economic stimulus in the short term and huge government deficits and reduced public investment in the longer term. That’s not my opinion— that’s a verifiable fact.
Remember that big corporate tax cut that President Trump signed in December 2017? The one that was going to send corporate investment in new plants and equipment skyrocketing? Sorry, that never happened. Instead, corporate America gave the money to their wealthy shareholders and used the rest to buy back stock. Oh, and the federal deficit has jumped dramatically as a result and is now forecast to hit just under $1 trillion this year.
Most Americans recognize that our economic and political system used to work better and, at times, even served the interests of average folks. Back in the 1950s and 1960s, we actually taxed the wealthy and corporations in America and used those revenues to build modern airports, the interstate highway system, and new public schools to educate the baby boom, to electrify rural America, to subsidize home mortgages for those with sufficient credit or to build affordable housing for those who didn’t. The top marginal tax rate under that old socialist, President Dwight D. Eisenhower, was 92 percent, which meant we could do all those things, plus wage the Cold War, and still balance the budget.
Higher taxes on the wealthy come with a multitude of benefits. And one that isn’t often mentioned is the effect that higher marginal tax rates used to have on corporate culture. Back in the 1950s and early 1960s, the typical CEO made about 15 times as much as their average worker. Today, the typical CEO is making 300 times as much as their typical employee. Is it because those CEOs are working 20 times harder than they did in the 1960s? Of course, not. But companies back then had little incentive to focus their energies on boosting CEO pay, since above a certain level the government pretty much taxed all of it. That meant they could put resources into keeping employees happy, with more frequent raises or better benefits, or make longer-term strategic investments. The CEO-to-worker pay ratio remained remarkably flat in the U.S. until the late 1980s, when the top marginal tax rate was slashed in phases from 70 percent in 1981, to just 31 percent ten years later. That change in tax policy altered the corporate culture, putting far more emphasis on top executive pay and shareholder return. Worker wages stagnated as a result, as corporate profits were shoveled to the top, and that’s a trend that has continued ever since.
Higher taxes also generate higher government revenue, which can then be used to provide services and infrastructure that advance the public good and grow the economy to the benefit of everyone, from workers to business owners.
Calling for free college tuition sounds radical, until you remember that we used to fund virtually the entire cost of operating public colleges and universities in this country, which made tuition essentially free. I paid $276 for my first quarter tuition and fees at the University of Minnesota in 1979. Today, a semester’s tuition is more than $14,600.
Rather than taxing the wealthy to help pay to educate the next generation and make our economy more productive, we force young people to borrow the money from the rich at high interest rates, leaving them in debt for decades in many cases. The student debt crisis was never inevitable. It was something that our politicians engineered by slashing taxes on the wealthy.
When you hear a politician or pundit claim that we can’t afford to provide free public college tuition or affordable housing, to invest in green energy, or to provide quality health care to everyone, remember what they’re really saying: We can’t afford those things and still keep our billionaire financial backers happy.
And that’s where tax policy feeds into our democratic process. One of the most appalling developments in recent years has been the rise of the billionaire political kingmaker, which is most pronounced in the Republican Party. The Koch Brothers, the Mercers, the Uihleins, and the biggest sugar daddy of them all, casino-magnate Sheldon Adelson, now virtually dictate the policies of the GOP through their vast campaign spending. And, not surprisingly, those policies are focused on putting more and more money into their pockets through tax cuts and deregulation. The interests of average Americans aren’t even a consideration.
Sadly, the Democrats, particularly under the Clintons, were all too happy to play the same money game, and it led to a situation where both parties were focused almost exclusively on the interests of the nation’s wealthy elite— Wall Street and Hollywood in the case of the Democrats, and Big Oil and Big Pharma in the case of the GOP.
So as the 2020 campaign kicks into high gear over the next several months, it’s worth considering the central role that taxation plays in our society. Some candidates are now proposing significant increases in tax rates on the wealthy, and such policies, if passed, would help to reduce the staggering income inequality that now plagues our country, provide new opportunity for investments in the broader public interest, and help to limit the role of vast wealth on our electoral process.
Those who dismiss higher taxes on the wealthy as somehow un-American, don’t know their history. Exactly a century ago, the top marginal tax rate in the U.S. was 73 percent and it remained in that range or higher until the 1980s. The only brief exception was in the 1920s, when the rate was cut to 25 percent, fueling an orgy of financial speculation that led to the Great Depression. Otherwise, for most of a century, America heavily taxed the rich, and our society and economy thrived as a result. If we really want to make America great again, it’s time to tax the rich again.