Against Oligarchy, Part I: Progressive Taxation

Against Oligarchy, Part I: Progressive Taxation The history and theory of taxes on the elite Forbes America is becoming increasingly oligarchic. Today’s post is the first in a series on the economics of oligarchy in the United States, where wealth and power are increasingly concentrated in the hands of a small group at the top, and government policies have reinforced that concentration of wealth and power. Saying that America is experiencing the creation and entrenchment of a tiny oligarchy of hyper-wealthy individuals is no longer controversial. The truth is that this process has been proceeding for several decades, largely via a concerted effort by extremely wealthy right-wing families such as the Koch Brothers. Until recently, however, the undermining of America’s republican vision largely flew under the radar of observers other than those tracking the changing landscape of campaign finance and the Supreme Court nomination process. However, under the second presidency of Donald Trump, the rise of the tech billionaire broligarchs, who openly and lavishly supported Trump while enriching his family members, has put the dynamics of American oligarchy in the spotlight. Moreover, today’s billionaire class is far more tightly linked in its interests and interactions than the earlier generation of hyper-wealthy – such as the Koch Brothers (fossil fuel), the Adelsons (Las Vegas casinos) and the Walton family (Walmart). As Henry Farrell notes, right-wing tech billionaires like Peter Thiel themselves depict the tech industry as a place where everyone who counts knows everyone else. Venture capitalists are closely interconnected. Founders and CEO’s look at each other with a mixture of respect and jealousy. Thiel describes how you want to build your company around a ‘mafia,’ and Silicon Valley is organized in ways that are not entirely unlike its Sicilian predecessor in its golden era. There is no central organization, but there are central cliques. You need to be connected to get things done. A few hundred billionaires, around 0.0002% of the adult population, have a combined wealth equivalent to approximately 20 percent of GDP. This tiny set of hyper-wealthy individuals also accounts for approximately 20 percent of total campaign contributions and thereby exerts huge influence over public policy – a state of affairs that is a direct result of the Koch-created Roberts Supreme Court’s Citizens United ruling. The hyper-wealthy use their influence to push policies that are in their class’s interest, such as corporate tax cuts. And because these policies are almost always highly unpopular, they also use their influence to undermine accountability and democracy in America. If that doesn’t make America significantly oligarchic, I don’t know what would qualify. Moreover, the self-reinforcing nature of oligarchic influence creates what I have called a “downward spiral of oligarchy” — extreme wealth leads to extreme political influence, which leads to greater benefits for the hyper-wealthy, and thus even more extreme wealth. Some may ask: wasn’t it always thus? No, it wasn’t. Granted, market economies always generate significant income and wealth inequality, and economic inequality always leads to some inequality in effective political power. But even a quarter century ago the wealth and power of the economic elite were far more limited than they had been during the Gilded Age — and far more limited than they are today. A few days ago I argued, based on economic research, that the soaring concentration of wealth at the top since the 1970s largely reflects a decline in the progressivity of the tax system — the end of high taxes on the elite, which when in effect both limited the ability of the very wealthy to accumulate ever larger fortunes and limited their political influence. Today’s primer will do a deeper dive into the rise and fall of progressive taxation in America since the early 20th century. This post will not engage in the debate over direct taxes on wealth. Such an important policy debate deserves a post of its own, which I will write soon. In addition, I will discuss in future posts other ways to limit oligarchy, such as anti-trust policy, consumer protection policies, and measures to limit political corruption In this first post of the series, I will address the following beyond the paywall: 1. The history of progressive taxation in the US 2. Who really pays high-end taxes? 3. How high should high-end taxes be? 4. How should the hyper-wealthy be taxed?