If We Decided to Tax the Rich

from the book

Sharing the Pie

by Steve Brouwer

Can the people of the United States retake control, once again taxing the richest citizens at a progressive rate and creating a fair society for all? If we had a Congress and a president who were willing to promote the interests of the vast majority of Americans, we could recapture some of the accumulated wealth that has been transferred to the rich over the last two decades. A reallocation of our resources could serve working people in the following ways:

* by creating full employment, with a higher minimum wage and shorter workweek

* by supporting quality day care for all who need it

* by providing for federally funded health care that serves everyone

* by rebuilding the nation's schools, roads, bridges, sewers, and parks

* by offering free higher education and other training to all citizens

Measures such as this will certainly cost hundreds of billions of dollars. Where can we get this kind of money while keeping the budget deficit reasonably low? There are several places to start:

* We must reestablish upper-bracket federal income tax rates comparable to those imposed during the prosperous decades of the 1950s and 1960s. The current effective rate on the richest 1 percent, whose income is at least $900 billion per year, is about 25 percent. An effective tax rate of 50 percent on the very richest 1 percent of Americans would raise an extra $225 billion.

* Raise the effective tax rate on corporate profits to 50 percent, the approximate rate of the 1950s. Profits have risen dramatically, to over $600 billion per year, while taxes have remained at an effective rate of about 25 percent, so this increase would yield another $150 billion.

* Institute an annual wealth tax of 3 percent on the richest 1 percent of Americans; this will yield $250 billion per year.

* Cut defense spending on new weaponry by $100 billion to stay in line with the diminished military budgets of the rest of the world.

These proposals, and the $725 billion they would raise, might outrage the corporations and the rich, as well as the politicians whom they have so carefully cultivated; but it would hardly be a case of impoverishing the well-to-do. The $625 billion in increased taxation would simply restore the more equitable (but hardly equal) distribution of income and wealth enjoyed by Americans three decades ago. The exact fiscal measures used to achieve more egalitarian economic outcomes are not all that important; the ones listed above could be modified or partially replaced by others. (For instance, Social Security taxes could be made less regressive by assessing them on the highest salaries, and on all forms of property and financial income as well. Other worthy forms of taxation could be reestablished, such as the once progressive but now largely eviscerated inheritance tax.

Big Problems Require Big Solutions

A class war, waged by the rich with very little opposition from the working class, has already taken place. The size of economic transfers recommended here would enable us to redress the imbalance of power in appropriate proportion to the inequality that has been imposed over the past twenty years. The money is there, and its redistribution back to working people would establish the balance that exists in most of the other highly industrialized countries.

Righting the imbalance between the rich and the working class is not just a matter of tinkering with budget deficit rules or massaging the Consumer Price Index or the measures of productivity. It is a battle for political and economic power, a matter of control over the political economy. Sharing our economic resources more equitably again will require ordinary citizens to exercise their democratic rights in a determined and unified manner. This fundamental shift cannot be accomplished by a quick swing of voters in one election, but only through a lengthy process of education and organization that convinces the American people that major changes are both desirable and possible.

Labor and Work

Even though labor unions in the United States threw $35 million into targeted congressional races in 1996, there is little merit in the conservative claim that organized labor has the same kind of power in the Democratic Party as big business interests have in the Republican Party. Unions have resources that are minuscule compared with those of business interests: in 1996, all labor associations together collected $6 billion in dues, as compared with the $4 trillion in revenues and $360 billion in profits gathered by corporations. Labor can gain politically only when millions of working people, unionized and non-unionized, are engaged in the political process.

There are reasons for optimism. Despite the fact that the percentage of organized workers has been more than cut in half in the past forty years, from 35 percent to less than 15 percent, unions have made recent gains in organizing women, Hispanics, and African-Americans as members. In making an effort to organize the working poor and to alleviate the exploitation of part-time and contingent workers, unions are reviving the universal goals that once gave life to the labor movement. The emphasis on raising the wages of those at the bottom is crucial in two ways: it stresses the equal status due to all those who are willing to work, and it protects the wages and benefits of those already organized.

A distinct turnaround in public perceptions of the labor movement became evident in August of 1997 during the strike by drivers and package handlers at United Parcel Service. Opinion polls showed that Americans backed the Teamsters over UPS management by a margin of 2 to 1. This was a bit surprising given the Teamsters' well-publicized history of corruption and the fact that UPS was generally regarded as a good company. Two beliefs seemed most compelling to average Americans: first, that a company making billions in profits should be able to share them with hardworking employees; and second, that a company which had increased its number of part-timers to over 60 percent of its workforce, then paid them only half the wages of full-time workers, was trying to screw people over. This resonated with many average Americans who had either experienced downsizing themselves or who clearly understood that many companies felt free to throw loyal and competent workers aside.

The shift in public attitudes was having an effect on some voices emanating from the business press. Business Week, which had celebrated corporate CEOs as "stars" who deserved the 30 percent raises they received in 1995, did an about-face in April of 1997 when it reviewed the 54 percent increase in CEO compensation for 1996: "Call it Executive Over-Compensation," read the headline of their editorial, which concluded, "Compensation is running riot in many comer offices of corporate America. This simply has to stop." More surprising still was the magazine's reaction when it uncovered a tiny increase in wages of working Americans (about 1 percent) that had occurred between the summer of 1996 and the summer of 1997: "The prosperity of recent years is finally being shared by those in the lower tier of the economy-and that is cause for celebration, not despair. " While Business Week was obviously premature in announcing that prosperity was being shared, its sentiments suggested that American concerns with inequality were finally being heard.

While the destruction of the social safety net has been a defeat for labor, welfare itself can be redefined by a progressive, labor-backed political program. Welfare should represent part of a universal social contract that can be extended to anyone who meets with severe economic hardships. The contract would make only one demand: that every capable citizen be willing to work. In return each citizen would receive good wages, quality education, and job training, with the added benefits of universal health care and day care. This kind of practical social democracy, grounded in the culture of working people, would quickly deflate the false claims of the right, that the poor are "lazy," "shiftless," and worse. The vast majority of the unemployed and underemployed poor, of whatever race, would be happy to claim membership in a newly dignified working class.

The power of labor has been unfairly curtailed in recent decades, so it is necessary to fight the legal restrictions and management policies that prevent union activity among the poorly paid and unorganized. But this alone is not sufficient. The more challenging task is convincing a good portion of the middle class that it too benefits from working-class mobilization. New kinds of political and social organizations must be formed-not necessarily traditional labor unions-to articulate the goals that middle-class employees share with lower-paid workers. Political solutions will require a very broad solidarity among working Americans, a solidarity that can bridge class, racial, and ethnic lines. This should not be too difficult at a time when working conditions, benefits, and job security are deteriorating even among privileged salaried workers, and when many in the so-called middle class are being subjected to "working-class" treatment by senior management.

Conclusion

... Not all of our economic and social problems began in the last two decades of the twentieth century, but the policies pursued during the Reagan-Bush-Clinton era have made things considerably worse. Working people have suffered so that a small elite could enlarge its fortunes. In turn, this accumulated money has been wasted on speculative trading, widespread fraud, and nonproductive sectors of the economy, as well as corporate investment in countries where labor is provided by desperately poor people.

The old structures of capital accumulation have brought us regular cycles of poverty and depression in the past. Today things are worse, for capital has lost whatever productive drive and capability it once possessed; the glorification of entrepreneurship in the 1980s brought on the destruction, not the multiplication, of our national assets. The upper class tried to regenerate itself through money games that were far removed from real economic production: the plunder of the banking system, the privatization of public savings, and the paper trade in corporate assets.

It seemed, only a few years back, that if the United States failed to break these habits we would keep sinking in relation to other highly industrialized countries. The ascent of the economies of Japan, Germany, and the rest of Western Europe from 1950 to 1990 was remarkable. They seemed poised to leave us behind precisely because they were taking much better care of their people at the same time that their societies were becoming more productive.

Today something more frightening is happening. The United States, in concert with the corporate engines of globalization, may well bring the rest of the industrialized world down to its level. Once that has happened, the forces unleashed by international finance capital will keep pushing living standards downward. It is uncertain whether the kinds of social democracy set up in Western Europe can survive the current trends that have internationalized capital. Now, as capital moves quickly from continent to continent, often searching for cheap labor disciplined by authoritarian regimes, the capitalists are becoming more internationalized, too (whether they know it or not. They cannot possibly show loyalty, whether feigned or real, to the working and middle classes in their own countries.

Without a sharp turnaround toward democracy and equality in the United States, Europe will be virtually alone in its commitment to social democracy. The pressures low-wage immigrant labor, cheap imports from Eastern Europe and Asia, and free-market practices of governments are already threatening once secure areas of employment and causing right-wing populism to pop up in various Western European countries. Surprising numbers of middle-class and working-class voters have supported ultra-nationalist, neo-fascist parties throughout Europe because, like white male workers in the United States, they see their status slipping.

Europe's weakened remnants of social democracy may survive for a while, but are unlikely to do very well if the American, Japanese, and other international investors (including Europeans) keep filling the world's markets with cheaper products produced by mainland Chinese, Indonesians, Thais, Vietnamese, Filipinos, and others in the vast new workhouse of Asia. In this chaotic world mess, the authoritarian/austerity regimes based on the Taiwanese and South Korean experience will be the model for modem development; their kinds of management teams are exportable, as are their long hours and brutal working conditions. These factors are rapidly fuming China, the ultimate labor resource, into a giant replica of the Asian Tiger economy.

In the United States few mainstream commentators are paying attention to the ways that "free-trade" ideology is undermining real freedom. They have failed, for instance, to see the dark portents behind President Clinton's willingness to seek campaign contributions from Indonesian billionaires and Chinese corporations. Conservative columnist and former Nixon speechwriter William Safire was one of the few to see the situation t clearly when he described "the central point of the ideo-economic struggle going on in today's world. On one side are governments that put 'order' above all, and offer an under-the-table partnership to managers who like arranged outcomes and a docile work force."

If Arkansas, which looks suspiciously like a center of third world development within the United States, is the economic and political model stuck inside our President's head, then we are already in trouble. And if Singapore is the model state for globalizing high-tech development in the eyes of the world's investing class, then we are drifting toward something worse: an illusion of democracy called "authoritarian democracy."

Nearly one hundred and seventy years ago, Alexis de Tocqueville wrote that "the manufacturing aristocracy which is growing up before our eyes is one of the harshest that ever existed in the world.... If ever a permanent inequality of conditions and aristocracy again penetrate the world, it may be predicted that this is the gate by which they will enter." The new corporate aristocracy- controlling not just transnational manufacturing but also worldwide finance and services-is more powerful than anything de Tocqueville could have imagined, and it has diminished the prospects for democracy in America.

The citizens of the United States need to restrain the single-minded accumulation of private capital, invest in strong public institutions, and give human values some room to thrive. Real democracy requires that the people find ways to share wealth and power.

As the repositories of immense wealth and I technical expertise, the rich nations of the North ought to promote peaceful and fair development rather than unleash free-market chaos throughout the rest of the world. At home, the productive forces of the: United States and the other advanced industrialized countries are easily sufficient to enhance equality and democratic values, as well as provide a comfortable standard of living for all.

Sharing the Pie