Tax Justice and Class Warfare

When Trump Republicans passed the historically unpopular Tax Cuts and Jobs Act, they continued a 3-decades long GOP effort to reshape the tax code in ways that are hard to reverse.  Relying on what political scientists call path dependency, Republicans have steadily moved us toward a tax system that increases inequality and that makes it harder and harder to sustain most of what the federal government does to fulfill its Constitutional responsibility to “promote the general welfare.”   What they have done would be more appropriately titled the Consolidating the Oligarchy Act.

Republicans are betting that a reasonably strong economy and a series of small tax cuts for almost everybody in 2018 will make them more popular going into this year’s mid-term elections.  If Democrats want to win this fall, they cannot be satisfied to merely attack the GOP’s “tax reform,” the vast majority of whose benefits go to corporations and the top 1% to 5% .  They need their own bold tax fairness plan that frankly taxes the rich to pay for a wide variety of government activities that majorities of the public firmly desire – everything from a long-term modernizing infrastructure program and increased funding for education and veterans to deficit reduction and real lower-income and middle-class tax cuts.  Such a program would be wildly popular (see recent Gallup and Pew surveys), with the potential to win back millions of white-working-class swing voters as well as to regain huge margins and turnout among working-class people of color.

Simply removing the tax code’s bias that favors investors over workers, consumers, and home-owners would provide enough revenue ($300 to $500 billion a year) for a progressive government to really make a difference in working people’s lives and prospects.  And unless we do that, the government will increasingly lack the resources to address any of our problems that cost money to solve, which is almost all of them.  What’s more, systematically advocating how to unrig the tax code would provide Democrats a rich opportunity to reveal how American oligarchs have been buying and renting our government to suit their purposes – especially when contrasted with the Trump GOP’s hypocritical insistence that what they have done is a “middle-class tax cut.”

Pelosi-Schumer-Clinton Democrats will not put forward such a tax-fairness program, because they’re afraid of losing wealthy donors and affluent suburban white voters.  Progressive Dems, on the other hand, have developed such a program over the past several years (see here, here and here), but rather than highlighting tax fairness, they focus on raising revenues as ”pay-fors” for the progressive programs they want to enact.  This may be practical and even honest, but it isn’t the right strategy — not this year and probably not for the next several years.

The negative public perception of the Trump Tax Cut as a give-away to corporations and the rich, along with Trump’s historically low approval ratings, is a once-in-a-lifetime opportunity to make raising government revenue into the class-war social justice issue it deserves to be.  What’s more, no single action of the President more concretely illustrates the distance between his rhetorical populism and his actions to enrich himself and his fellow oligarchs. To take advantage of this unique moment, progressive Democrats need to lead with moral arguments about tax justice and pound away at the gross class bias in the very structure of our tax code.  This before addressing the complex economic and fiscal issues involved, where progressive analysis and argument are also well-developed and very sound.

The signature plank in a tax justice platform would be equalizing the tax rates for earned and unearned income, which both the Congressional Progressive Caucus’ People’s Budget and Bernie Sanders’s comprehensive reform plan propose to do.  Currently, people who work for a living pay higher marginal rates than people who get their income from investing rather than working.  Most people do not know this, and when they find out, they are outraged.  In a country where working hard is something like a national religion, especially among the working class of all colors, a tax code that disadvantages work is a moral abomination.  Taxing investment income (capital gains and dividends) at the same rates as income you work for would produce a lot of revenue, but the more powerful political point is how the current code dishonors work and disdains workers.

Progressive Dems also advocate a federal sales tax on the purchase of stocks and bonds (usually called a “financial transactions tax” or FTT).   A potentially huge revenue raiser and, therefore, a key “pay-for,” an FTT also brilliantly illustrates class bias in that consumers pay hefty sales taxes for clothing, shoes, and meals at restaurants, but investors currently pay nothing when they buy stocks and bonds.

Finally, there is the beginnings of a policy discussion about a “wealth tax.”  It is usually not noted, however, that we already have a wealth tax at the local level where home-owners pay annual taxes on property.  What is untaxed is wealth in the form of financial assets.  Again, investors are given a free pass.  As with sales taxes, they not only do not pay their fair share, they don’t pay any share at all.   Proposals for a “wealth tax” are not nearly as well developed in legislative language as the previous two ideas, but this concept provides a useful talking-point for Dems because it illustrates so concretely how the tax code is systematically rigged not only against workers and consumers, but also against “middle-class” home-owners.

The especially transparent class bias of the Trump Tax Cut also provides a unique opportunity to advance other progressive goals.   Given the huge tax cuts for corporations, a $15-an-hour minimum wage just got more affordable for businesses large and small.  Likewise, Republicans can no longer label various mandates on businesses – everything from paid family leave, sick leave, and vacations to the wide array of employer mandates in Ohio Senator Sherrod Brown’s “Plan for Restoring the Value of Work in America” – as the onerous job killers they were before corporate bottom lines were refreshed with mounds of cash.  Likewise, the Act left a lot of special-interest loopholes in the corporate code, and even added some, that Democrats can and should go after.

Most political strategists agree that Dems should not run on a simple isn’t-Trump-terrible program in the 2018 mid-terms.  At least 60% of voters in 2016 viewed our stable genius unfavorably then and knew he was dishonest, untrustworthy, and unqualified to be president, but nearly 1/5th of those voters voted for him anyway!  To win governing majorities, Democrats need to stand for a compelling program that offers hope and change again.  An us-against-the-oligarchs message focused on tax justice has a double advantage in that regard.  It is a unifying values message that has the potential to rally the bottom 80% or 90% across lines of race, gender, and class.  And if successful, such a program would provide the revenue needed to reverse the ongoing American carnage in working-class life that is shared — unequally to be sure — by workers of all races, genders, religions, regions, and national origins.

The Democratic Party does not seem well-prepared to advance such a vision, but the vacuity of mainstream Dems’ Better Deal platform, combined with the spectacular hypocrisy of the Trump GOP’s “middle-class tax cut,” opens the door wide for progressive Dems to offer the kind of realistic, compelling program that has been articulated by Bernie Sanders and the Congressional Progressive Caucus.  The technical complexities of our tax code hide a vicious class war, and Donald Trump has just put a loathsome human face on that war.  Of all the rigged systems our oligarchy has in place, unrigging this one could rally large majorities and then provide the resources to turn the wheel of fortune toward America’s struggling working and threatened middle classes.

Jack Metzgar

 

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9 Responses to Tax Justice and Class Warfare

  1. Fred Anderson says:

    I’m sorry. I left a thought unfinished. My 2nd comment’s discussion of how much each quintile pays presented data without any reference frame for judging that. It said, “Here’s the percent each pays”, without providing any frame for judging how much each quintile *should* pay. While there might be many such frames, one at least would be “What percentage of U.S, income is garnered by each such quintile.” (The “Does pay” percentages are for 2013; The “Income garnered” percentages are for 2015. While the percent paid has been slowly shifting upward for higher quintiles, I don’t *think* the different base years matter much here.) To repeat (with adjustments):

    As for “the current distribution of the tax burden (being) just and fair”; The CBO’s most current figures (2013) show the following distribution: (This is *all* Federal taxes, including, Income, Payroll, Excise, Estate, etc.). The top quintile by income paid 69% of the total Federal taxes; They garnered 51.1% of all U.S. income in 2015, averaging $202,366 per household per year. The second quintile paid 17%; They garnered 23.2% of the income (Mean = $92,031). The middle quintile paid 9%, garnered 14.3%, and averaged $56,832. The 4th paid 4%, garnered 8.2% and averaged $32,631. And the bottom quintile paid 1% of all Federal taxes and garnered 3.1% of all U.S. income, while their mean annual household income was $12,457 in 2015. (Confounding factors are that lowest quintile households tend to be smaller, and have fewer wage earners. Many of these smaller households are younger and just starting out, or elderly and widowed.)

    Income data are from The Census Bureau Historical Income Tables, Tables H-1 and H-3 as reported at the Tax Policy Center’s website.

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    • jackmetz1 says:

      Good correction from your earlier post, Fred. What the CBO estimates show is that federal taxes are mildly progressive, though dramatically less so than in the U.S.’s 30 most prosperous years from the 1940s into the 1970s. But if you add in state and local taxes (like sales and property taxes highlighted in my blog), the progressivity disappears. Furthermore, the Obama years’ numbers, of course, do not reflect the recent Trump Tax Cuts, the vast majority of which will go to the top 5%. And, Fred, I’m still wondering why people who don’t work for their income should pay lower rates than those who do the work.
      Jack Metzgar

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      • Fred Anderson says:

        Everything you say here is true, Jack. I think there are rebuttals, but do you want to do that here? (What is the tolerance level of this blog audience for libertarian maunderings?)

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  2. Fred Anderson says:

    Jack;
    You may be correct that this can be built into a political strategy for Democratic wins. But I doubt that *society* wins under such an approach.
    A smaller, more “technical” point: Corporations don’t pay taxes, they merely collect them for the government. A tax on a business will be viewed by that business as a cost. Any business that cannot recover its costs goes broke. Since they don’t want to go broke, they’ll find somebody to pass it along to. Since services are almost always local — you have to be with the server to receive service (consider a haircut) — and since 75% of our economy now is services, most businesses will simply pass that tax along to the customers (knowing that they cannot find a different local server who isn’t also trying to pass along that tax).
    For the 25% of the economy that is still based in physical goods, the businesses can’t do that; customers buying things that can be shipped can simply buy from foreign suppliers who aren’t passing along that tax because they aren’t paying that tax (on *U.*S.* businesses). They can’t pass it along to investors; those investors can always invest elsewhere / they don’t have to accept such punishment. If you can’t stick the customers or the investors with it, that leaves workers. Workers who, if they’re not willing to learn a foreign language and move overseas, have little hope of finding another manufacturing job where that new employer isn’t trying to do the same thing. (Stagnating wages + Made in China)
    A larger and more ethical / moral point: If the campaign is simply bludgeon your more prosperous neighbor and steal his purse, I believe that campaign will likely fail. Americans are better people than that. (And our hatreds have not yet been whipped to such a fever as to justify our behaving so.)

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    • jackmetz1 says:

      I’m surprised you have such a simple view of business pricing, Fred, with no role for supply and demand in competitive markets or the role of productivity growth in shaping unit labor costs. But your so-called moral point is way off base. I don’t know where you found “hatred” in my argument, which is about fairness and equity, and class bias, in our tax code. That all you see is “bludgeoning your more prosperous neighbor and stealing his purse” ASSUMES that the current distribution of the tax burden is just and fair, and that there is no American oligarchy that has and is shaping that tax burden in order to enrich themselves and enhance their power over the rest of us. That’s the argument you should address, not my supposed lack of neighborliness for suggesting that ours is not the only possible tax code.
      Jack Metzgar

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      • Fred_PA_2000 says:

        Jack;
        Concerning “an American oligarchy that . . . (seeks to) enrich themselves and enhance their power”, that sounds to me like an arguement for smaller government. I am not at all surprised that those who could be injured by a powerful state would seek to get control of it. And, having plenty of resources, their eventual success would seem likely, if not assured. The problem with concentrating too much power in too few hands is that, sooner or later, they’ll be the *wrong* hands. President Obama’s strengthening of the Executive branch (vs. the People’s legislature) has gone a long way toward enabling the predations of Donald Trump and the oligarchs you rightly oppose. The path dependence you refer to at the top of your article usually implies some degree of irreversibility (the future you wanted is now in some distant part of the state space with no obvious way to get from here to there). I hope that you’re wrong about that.

        As for “the current distribution of the tax burden (being) just and fair”; The CBO’s most current figures (2013) show the following distribution: (This is all Federal taxes, including, Income, Payroll, Excise, Estate, etc.). The top quintile by income pays 69% of the total. The second quintile pays 17%. The middle quintile pays 9%. The 4th pays 4%. And the bottom quintile pays 1%. (Just as a curious aside, only about 30% of Americans have a college degree. They are presumably all in those top two quintiles. We are parlously close to “get a degree, get yourself taxed.”)
        My fear is that taxing the “rich” more heavily does not crimp their profligate lifestyles; they still enjoy that; but now there is less left over to invest / save. Reducing investment in the U.S. means fewer, and less productive, jobs here — an outcome hardly to the advantage of American workers. (Admittedly, past attempts to increase their savings / investing didn’t work out for us. That probably was because our high and uncompetitive corporate tax rate led these people to invest overseas. Ironically, we unintentionally lifted hundreds of millions of Asian workers out of poverty instead.)

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