Why the GOP defends the wealthy

By David Callahan
September 27, 2011

By David Callahan
The opinions expressed are his own.

With polls showing strong public support for tax hikes on the rich, Republicans should hardly relish a fight with President Obama over “class warfare.” And yet, for weeks, GOP leaders have been bashing the White House for a tax plan that affects just 2 percent of U.S. households and lets the rest of us off the hook.

How is this smart politics?

Maybe it isn’t, but sticking up for the rich is more popular than one might think – and not just in Palm Beach. America is a famously aspirational country and Republicans have long sought to ally themselves with that ethos. If you want to make a pile of money, the GOP is the party for you – or so they say. It vows to clear away barriers to getting rich, like pesky employer healthcare mandates and environmental rules, and let you keep more of your winnings.

Meanwhile, the conservative story goes, all the left cares about is social leveling. Democrats want to punish the successful in order to subsidize the losers, leading us toward a dreary future in which America’s hot shots no longer even make an effort and everyone ends up poorer. As Fox News puts it, Obama favors “takers” over “makers.”

This is nonsense, of course. The President merely wants to go back to the tax rates of the 1990s, a boom decade hardly remembered for its creeping socialism. And one of his main reasons for hiking taxes on the wealthy is precisely to keep the American dream alive, avoiding deep cuts to education, infrastructure and other keys to our long-term prosperity. What’s more, the wealthy have been pulling up the ladder behind them for years – they’re the real experts at class warfare, according to Warren Buffett – and it’s about time that we had a president who says that this is not okay. So far, most Americans would seem to agree.

Still, singling out the wealthy for higher taxes does carry risks. The deep-seated American values of aspiration and economic freedom have a funny way of trumping rationality in debates over fiscal policy. Let’s not forget how George W. Bush’s massive tax cuts – which shoveled huge gains to high earners and chump change to everyone else – proved strangely impervious to criticism, starting with Al Gore’s repeated attacks during the 2000 campaign. Like Obama, Gore imagined that fiscal policy was about the “math” of who should logically pay what. John Kerry made the same mistake in 2004.

No, the tax debate is not about math. It is about which policies best advance the American desire to get ahead economically. Progressive message groups, such as Media Matters, argue that Democrats should justify tax hikes on the rich as a way to preserve crucial social insurance programs like Medicare and Social Security. That seems like bad advice, playing directly into the “makers vs. takers” framework. Shared responsibility may be another loser, since it prioritizes the common good over the individual – a hierarchy that Americans aren’t crazy about.

Instead, the President is on the right track when he explains why new revenues are needed to create jobs now and also to underwrite future prosperity and upward mobility. The winning message, in effect, is that taxing the rich will give all Americans a better shot at doing well financially – and even will benefit the wealthy themselves. Or, put another way, it takes money to make money.

A big appeal of this argument is that it is true. Everyone, including the rich, will do better in an America with slightly higher tax rates but also more investment in the foundations of long-term growth.

This kind of rap, about “winning the future” and such, may not be red meat for the Democratic base, which is rightly angry at an American upper class that ran the economy into a ditch with its outsized greed and unchecked privilege. But Obama needs more than that base to win in 2012, and also to prevail in fiscal debates today.

The coalition that elected the President in 2008 famously knitted together Americans of modest means and upscale professionals. If Obama scares away the affluent side of this coalition by not clearly siding with their economic aspirations, he’ll not only lose the election, but won’t have the public support he needs to push through his tax plan.

Raising taxes on the rich is the right thing to do. But it will only happen if Democrats show they are for success, not against it.

David Callahan is the author of Fortunes of Change: The Rise of the Liberal Rich and the Remaking of America (Wiley).

20 comments

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Everybody should pay ten percent. Everybody. The Republicans are defending the rich because they ARE the rich. When are we going to stop beating around the bush and label these two parties “Management” and “Labor”?

Posted by mollycruz | Report as abusive

This is so frighteningly backwards. The people who want to pull the ladder up behind them (for your “class warfare”) are the liberal elite, whose policies of keeping people dependent on government mean that less and less will have the opportunities or even ambition to make it big like they did. Of course low income people voted for Obama in 2008 – you can’t become president unless you get a good chunk of those. But just as much, they voted for Bush in the previous two elections. And many still did for McCain (remember he only lost the popular vote by a few percentage points). Republicans “stitch together” a coalition of low income, middle income, and wealthy because they realize that the way for everyone to do better is to keep as much of individuals’ income out of the sucking maw of the federal government. And of course the rich will end up paying “their fair share” – 10% of $10,000,000 in income is a heck of a lot more than 10% of $50,000 in income. Republicans give much more to charity – and the charities Republicans give to are generally actual charities, not art museums or dance troupes. Leave people more money and bring back the culture of giving and we can get rid of all the waste inherent in federal programs and allow the states to experiment with their own levels of taxation and government services.

Posted by daized79 | Report as abusive

Thanks for a perceptive article, David.

You are absolutely right, and I fall into the same trap of justifying higher taxes for the wealthy by appealing to the need to save our most popular social programs. Americans just don’t think that way.

We are a nation of entrepreneurs, and entrepreneurs need two things:

1) Consumer demand
2) Capital

When the vast majority of wealth in a country migrates to the top 10%, as it has over the last 40 years, that reduces the purchasing power of the rest of us. Entrepreneurs can’t make money if their customers are barely getting by. For economic reasons alone, we need to reverse the trend toward increasing wealth/income disparity. Huge income inequality kills consumer demand.

Regarding capital, wealthy individuals and companies have no problem getting loans, raising capital, or paying for infrastructure. They already have the cash and collateral. But for entrepreneurs this is a huge hurdle. Government investments in infrastructure of all kinds — investments that the GOP for some reason want to get rid of — are a way of providing capital to entrepreneurs and start-ups. They remove barriers to starting up and growing a business.

Let us not forget health care. One of the biggest barriers to starting a business — and one of the largest drivers of bankruptcy — is inability to pay for health insurance. The Affordable Care Act, once it kicks in, will get entrepreneurs over this obstacle. Yet Republicans are dead set on repealing it.

I just don’t get how Republicans are pro-business. They systematically undercut all companies except those that already made it big.

Posted by MarkHinCali | Report as abusive

The truly rich dont care about this country or any country. Its no coincidence that our older infrastructure is falling apart while we fall further behind in building new infrastructure like broadband access. Americans have been successfully fed the “if it cant be done for a profit it shouldn’t be done at all” ideology so that corporations can make massive profits (as they are doing now) without putting anything significant back. The democrats have no solutions but the Republicans will only make the situation much worse.

Posted by scottabc | Report as abusive

We do need to close the income gap so that middle class people can afford to buy the products and services produced by our companies, which is good for job creation. However, income equality is not viewed as an acceptable goal in this country, so Obama should be selling the public on “fair” treatment with respect to the tax burden, i.e., no special breaks (tax breaks and subsidies) for corporations and the wealthy. We should also treat capital gains no differently than other income for tax purposes. How is income from investments any different than income from labor?

Posted by kbwalker | Report as abusive

The GOP has been anti american for a long time. Of the rich,by the rich and for the rich is what they stand for. I say stick it to the rich and castrate every last one of them.

Posted by flfreethinker | Report as abusive

Are you kidding me? Get real. Half of what i make goes to taxes of some sort with federal taxes being, by far, the most by percentage. Then you have city, state and county taxes plus a sales tax on top of that. Just think of what i could do with half of that money to stimulate the economy. And by the way, the federal government is just going to piss it away on a $400 screw driver or toilet seat or both.

Posted by jumpinjoeflash | Report as abusive

This article has hit the nail on the head; recirculating cash into the economy creates demand and sparks growth.
THIS IS GOOD FOR BUSINESS.
Another way we could do this is to ramp up profitsharing.
A tax credit for pumping 20% of net profits back to employees would jump-start economic growth.
We should start talking about this option instead of getting stuck on the old worn out solutions such as government spending or austerity cuts.
The profitsharing tax credit can quickly turn this economy around by increasing household income to the people who help earn the wealth.
Increase demand, and you will save the economy.
Profitsharing Tax Credit

Posted by Seer | Report as abusive

Our corporate income tax rates are the highest in the world and the top one-tenth of earners pay two-thirds of the personal income taxes. The bottom half pay only 3 percent. It’s hard to pay less when you already pay so much less than others.

Obama wants to repeat the mistakes of the housing fiasco- playing Robin Hood between the productive and the unproductive. The results would be the same now, except that after already rewarding his campaign donors with the TARP bailout, there is less cushion to fall back upon.

If you cannot learn simple economics, learn Chinese.

Posted by tmeyer | Report as abusive

Who should pay money to rebuild our bridges?

Should it be the people who have money (money they received in the system created and supported by all of us) or should the people who don’t have money pay?

The choices are 1. no infrastructure or
2. Infrastructure but with
a. higher debt or
b. higher taxes.

Voting doesn’t change the options one single bit.

If we don’t want to invest in America, then we don’t have to pay for it.
But our children will.

Posted by Banj0man | Report as abusive

You make your wealth in Asia with your investments and live in the USA, the land of the safe, wealthy and free…

Why aren’t the politicians discussing tariffs and taxes on imports to protect American jobs?

Posted by Joeaverager | Report as abusive

“The deep-seated American values of aspiration and economic freedom have a funny way of trumping rationality in debates over fiscal policy.”

Yes indeed. WalMart learned to tap this ignorance very early on by re-naming all their clerks as associates.

It sounds important and more valuable, but is essentially worthless.

Voting Republican as a sign of wealth all started with Ronald Reagan and the middle class has been hanging themselves ever since.

Posted by KarmaPolice | Report as abusive

Taxing income is a bad idea, because it punishes people for being productive. The “progressive” or “graduated” tax system penalyzes people more as they become successful, which is the wrong thing to do if you want success. The complicated series of deductions to the income tax skews economic activity and has created an army of lobbyists in DC, exposing our politicians to the temptations of corruption involving extracting contributions. Our constitution is supposed to provide us all equal protection under the law, and the only way to really do this with tax is to have everyone pay the same percentage of their income with no exceptions or deductions. It is patently unfair to heap ever more taxes on the successful while 47% of the population pays no income tax at all but can vote for ever more entitlements. If the rich and poor had skin in the game then everyone would have an incentive to control govt spending and keep the tax rates low for all.

Posted by zotdoc | Report as abusive

Paul Krugmen said it right. The U.S. needs a debt to income ratio for spending by the federal government similar to that of WW II. Our water, energy, transportation and public infrastructure is collapsing. We are not addressing environmental issues such as drought, flooding, rising sea, land reclamation, air quality levels and our diminishing fresh water supply. We can’t make resources available to assist those who have been homeless since Hurricane Andrew.

Our institutions are all collapsing from “slash to the bone” budget cutting practices by politicians unwilling to be honest with their constituents about the true cost of effective government. Not the inept run on the cheap one we have now.

Clearly the united States needs to be remade anew. Much of the industrialized world’s manufacturing was devastated during WW II. These nations began rebuilding from the rubble in the late 1940s. Some would argue the U.S. payed for it(Marshall Plan). Isn’t it odd how the U.S. won’t pay to rebuild or replace what is quickly becoming rubble now in her own back yard?

Posted by coyotle | Report as abusive

[...] the GOP defends the wealthy (Reuters) David Callahan argues that because America is an aspirational country, talk of taxing the rich to [...]

The half of the population that pays no income tax should never be adversly affected by the half that don’t pay their fair share? Baloney.

Posted by zotdoc | Report as abusive

Yeah, your not too arogant. So, it comes down to “sucessful or losers? You, sir, are the loser!
Those rich people out buying classic, rich guy cars, need the extra money for those important toys, while the rest of us struggle in a world of few jobs available, banks charging every penney in sight and way over priced homes. Yes, your a piece of work!

Posted by rendy815 | Report as abusive

I think the columnist also is missing an important part of this story: the rhetoric. When politicians use words like “wealthy” and “top 2%” many (most?) people include the doctor or lawyer who makes six figures. Or the woman who creates a business, runs it for 20 years, then sells it for a couple million. In truth, none of these people are the problem we face.

Instead, it’s the extremely wealthy, which is totally different. Extreme wealth is any trust fund baby with over $10 million (because they did nothing to earn the money they enjoy, because society’s interests in using that money to create current and future wealth trumps their interest in the money). But it’s also the hedge fund manager who makes a billion dollars (or even $100 million). Extreme wealth also includes CEOs of publicly traded companies who makes more than a million or two (basically more than 50 times the lowest salary in their company).

It’s this group of extremely wealthy people that has exploded and has proven itself, for the most part, to be extremely greedy when it comes to paying a fair share to fund the infrastructure that makes their wealth possible (never mind the issue of whether or not anyone should make a billion dollars). You can’t create wealth without courthouses to enforce contracts, roads and bridges and the rest to deliver goods and get workers to work, and all the rest. And we cannot fund this infrastructure on the backs of plumbers, cops, and school teachers. I’d also argue that it is immoral for people who don’t have wealth to pay substantially for infrastructure that generates wealth, although they do get jobs often enough as part of wealth creation.

In any event, politicians will say stuff about this issue that deliberately conflates the $250,000 a year wage earner with the trust fund baby and the hedge fund manager. That’s because it short circuits the debate. I don’t want to overtax people who make less than a million in a year, personally. But politicians make me think that’s what we’re talking about when we talk about taxing wealth or wealth being a problem in this country.

Finally, the 1990s tax rate on extreme wealth should not be the yardstick. It should be the tax rates from 1945 to 1980, ranging from 90% to 63%, when all income groups saw their incomes double. Reagan and all Democratic Presidents since then have pushed a much lower top tax rate which, among other causes, has led everyone but the top 1% (and really the top .5%) to see their incomes go up more than 1% a year while inflation has gone up much more. I’ll know politicians are serious about solving this problem when they push a 65% tax rate on all income over some large number (say $5 million). It probably won’t happen short of another depression, or a revolution.

Posted by FredFlintstone | Report as abusive

@joeaverager “Why aren’t the politicians discussing tariffs and taxes on imports to protect American jobs?”

Because the Republican (and Democrats like Clinton, Gore, Obama, Cuomo) policy is to detax extreme wealth, deregulate the financial and other big industries (mergers especially), and suppress wages. That ensures the maximum profit to these large corporations and to their wealthy investors and their senior executives. It’s not the only way to organize human economic activity. But it is very efficient, over decades, at taking money from working people, the middle class, and the professional class and sending it upstream to the extremely wealthy.

Most US politicians these days are threatened by saving US jobs because it imposes burdens on large US corporations and crimps their profits. The entire economy is built around detaxation, deregulation, and wage suppression. It’s why WalMart (and Target) have low, low prices. It’s why the minimum wage is only half of what it would be if, like oil and other cost inputs businesses face, the minimum wage had been pegged to inflation.

Posted by FredFlintstone | Report as abusive

if they tax the wealthy it will take away some of their bribe money they are all too greedy for that being the best politicians that money can buy………

Posted by oldadt | Report as abusive

I am always astonished by the dichotomy of opinions expressed in these comments that fail to look beyond the borders of the USA. I live in Sweden where income tax rates begin at 30% (no exclusions), and sales tax is 25%, and about 35% of those employed work for national or regional governments. But we have an excellent social security system, basically free health service, reasonable state pensions, worker participation in companies, and NO POOR! Sweden allowed more Iraqi refugees into the country in the first 6 months of 2009 than the USA has allowed in all together! Yet Sweden is ranked third in the world for technical innovation, exports over 50% of its production, and has been little affected by the “World” financial crisis, tho’ unemployment has risen. Further few wealthy Swedish citizens emigrate to avoid high taxation! People here have aspirations, and do achieve excellence. So who’s the problem in the USA?

Posted by IRATESCEPTIC | Report as abusive

[...] The reason the GOP keeps sticking up for the wealthy. [...]