Wednesday, September 12, 2007

Favoritism for the Wealthy

From Jonathan Chait at the TPM Book Club:

Class War and the Big Con

Some of the debate in the blogs last week focused on whether, or to what degree, leading Republicans actually believe the arguments they make on behalf of tax cuts, such as the common claim (made by leading Republicans everywhere, starting with President Bush) that tax cuts have caused revenues to grow. I think many of them do believe it. But the extent to which they believe it is fairly beside the point. The wealthy interests who favor tax cuts, and other pro-rich items, aren’t motivated by supply-side ideology. While they may believe that tax cuts help the economy, their deeper belief is that every dollar they have, including the dollars they inherited, is a reflection of their success and a measure of their virtue. So, in this sense, supply-side ideology simply plays the same role that Social Darwinism did a century ago and that economic orthodoxy did seventy years ago.

Or maybe they are just different justifications for the same mindset. I have argued before that we are starting to see a return of Social Darwinism as an accepted idea. I'm not convinced it has died out. I suspect it is more that Social Darwinism is being downplayed to some extent in favor of a new repackaged argument that rich=moral. Social Darwinism has at its core a belief that those who have attained wealth and status have done so due to their moral or genetic superiority.

It has even taken root in Christianity. If you look at the "Gospel of Wealth" being preached in conservative churches, you can see what I mean. I have seen people in conservative churches told that they are just not rich because they are not right with God.

I don't want to get too far off of the main subject, but certainly wealth does not equate in any way with moral superiority. "All great wealth starts with a crime" as we lawyers would say. In the Christian context, there is this from the Epistle of James:

2:1 My brethren, do not hold your faith in our Lord Jesus Christ, the Lord of glory, with partiality.
2:2 For if there comes into your assembly a man with a gold ring, in fine apparel, and there also comes in a poor man in shabby clothing,
2:3 And you pay special attention to him who wears the fine clothing, and say to him, Sit here in a good place; and say to the poor man, Stand there, or sit here beside my footstool:
2:4 Have you not then discriminated among yourselves, and become judges with evil thoughts?
2:5 Listen, my beloved brethren, Has not God chosen the poor of this world to be rich in faith, and heirs of the kingdom which he has promised to those who love him?
2:6 But you have despised the poor. Is it not the rich who oppress you, and drag you into court?
2:7 Is it not they who blaspheme the noble name by which you have been called?
2:8 If you fulfill the royal law, according to the scripture, You shall love your neighbour as yourself, you do well,
2:9 But if you show partiality, you commit sin, and are convicted by the law as transgressors.
2:10 For whoever shall keep the whole law, and yet stumble at one point, is guilty of breaking it all.

I think too many Christian leaders are skipping over these type of texts in both the Gospels and the other writings in the New Testament.

Anyway, back to the main subject: I found this quote at The New Republic's excerpt from Chait's book.

From 1947 to 1973, the U.S. economy grew at a rate of nearly 4 percent a year--a massive boom, fueling rapid growth in living standards across the board. During most of that period, from 1947 until 1964, the highest tax rate hovered around 91 percent. For the rest of the time, it was still a hefty 70 percent. Yet the economy flourished anyway. None of this is to say that those high tax rates caused the postwar boom. On the contrary, the economy probably expanded despite, rather than because of, those high rates. Almost no contemporary economist would endorse jacking up rates that high again. But the point is that, whatever negative effect such high tax rates have, it's relatively minor.

First, what needs to pointed out was that this referred, I think, to income tax rates. But the super-rich make much of their income from investments (i.e. passive income). Even if these were tax rates on capital gains, this would be taxation 1) only on the highest earners; and 2) on income not drawn from labor. The principle that we once had is that we want to encourage people to produce and contribute to the betterment of society and the economy. We don't want "trust fund babies" who don't have to work because their talents and abilities will have a tendency to go wasted. And as successive generations are born into wealth, they will have less appreciation for the benefits that their ancestor's labors brought to the betterment of their community.

Kids that come from wealthy homes already have lots of assets to draw from. Taking from the wealthy to help provide an equal access in the areas of health care and education -- just to name two services -- is only fair...especially given how beneficial those services are for the advancement of the economy and social well-being. There is a certain point where having too much wealth has a detrimental effect on productivity and social progress (political conservatives certainly never talk about this aspect of the acquisition of wealth). Proper use of the tax code can encourage talented and capable people to keep producing and innovating precisely because they want more.

Now, I'll grant -- for the sake of argument -- Arthur Laffer's central argument that there is a point where tax rates become so confiscatory that tax revenues will start to drop due to the negative effects it has on investment and labor; but we're certainly not there now. Furthermore, deficit spending (read: national government credit card) will crimp investment just as much; as the national debt (and its concomitant interest payments) is simply deferred taxation. Having the federal government file bankruptcy is just unthinkable. And lack of access to health care will lead to less productivity due to untreated illnesses or injuries (and, specifically, illnesses can sometimes spread due to their non-treatment -- leading to further drops in productivity). So exactly how do we benefit from denying access to health care based on ability to pay again?

To sum up, higher tax rates (than what we have currently) and implemented in the right places, can actually have a beneficial effect for society.

1 comment:

Robert D Feinman said...

The UK had a very high level of taxation and, more to the point, it had death duties. The purpose of these efforts was to eliminate the wealth of the landed gentry. It was coupled with a long effort to expand the vote to the widest number of people.

It worked, but took about 100 years to do it. Some of this progress towards equality has now been undone by Thatcherism, but much of it still remains.

There were lots of ways that people tried to avoid the high marginal tax rates, like moving abroad and shifting earnings overseas, but this could have been prevented if there had been enough outrage against it.

The result of this effort was a big improvement in the lives of the working people. It is, perhaps, that this was so successful that the super wealthy in this country are working so hard against any such efforts.

Their first step is to fund a bevy of "think tanks" which lay down an intellectual smoke screen to prevent any rational thought on the subject.

If you haven't seen it there is a nice report detailing their efforts. Just 18 families have spent millions on this propaganda and lobbying effort. The Waltons alone, stand to save $40 billion if they are successful.

Here's a link to the report (PDF):
Estate Tax Report

If you look up some the names in the report (like Scaife, Olin, etc.) you will see that they show up as supporters of many other rightwing efforts from the Cato Institute to the Hoover Institute. They don't restrict themselves to tax policy, but are also trying to influence foreign policy as well. Their efforts have paid off for the past 40 years, I don't know if the pendulum is starting to swing back.