The Great Debate

February 1913 marked a turning point in U.S. history. One hundred years ago this month, the states ratified the 16th Amendment, clearing the way for adoption of a federal income tax. Two decades before, in 1892, the Populist Party had first put a progressive income tax on the national agenda.

The income tax faced steep conservative opposition. Since it was enacted, in fact, the political wars over income tax have never stopped. Conservatives battled against it when it was first proposed and have continued the struggle ever since. Now, Tea Party conservativism has given that fight new force.

The economist Joseph Schumpeter called tax systems the “thunder of world history.” Because if you dig beneath the rhetoric, tax systems reveal the underlying direction in which societies move. The saga of the income tax says a great deal about changes in America.

In the decades before the income tax, the rich grew extremely rich while most Americans struggled on the edge of poverty. Mark Twain dubbed it the Gilded Age: Plutocrats built ever-bigger mansions; hard times pressed on everyone else. Yet by the 1950s, the income tax had played a crucial role in the mix of policies that narrowed the income gap and built a broad middle class.

Over the past 35 years, however, those policies have been under siege.

Corporations have bent the regulatory regime to their will. Legal barriers have helped efforts to dismantle the trade unions. And conservative assaults have pounded the progressive structure of the income tax. As a result, the United States is experiencing a crisis of inequality not seen since the last Gilded Age.

This is the fifth response to an excerpt from Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published this week by Penguin Press. The first response can be read here, the second here, the third here and the fourth here. 

When historians write the story of the presidential campaign of 2012, it is a fair bet they will focus on how the candidates approached the question of wealth, taxation and the responsibilities of America’s richest citizens. In fact, 2012 may be the year that class – long unspoken and unacknowledged in American life – finally became an explicit issue, the year when the illusion that America is a land of universal economic opportunity and relative equality was at last shattered.

The United States as a whole is one of the wealthiest societies the world has ever known. But aggregate wealth is not individual wealth. Per capita income may look good, but it’s a number and an average, easily distorted in a society with a handful of plutocrats. It brings to mind the old joke that when Bill Gates walks into a bar, per capita everyone suddenly becomes a millionaire.

This is the fourth response to an excerpt from Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published this week by Penguin Press. The first response can be read here, the second here, and the third here. 

Plutocrats is a provocative, articulate summary of the income inequality crisis having spawned the 1% crowd that “pulls up the ladder” available to others.   Honestly, I found myself wanting to read more, like a guilty pleasure.  If only it all were true.

There is such broad consensus that income inequality exists that to suggest otherwise feels ridiculous (Please, no global warming analogies).  For example, the Obama campaign emphasizes millionaires must pay their fair share.  Research by academics such as Piketty-Saez propose a top tax rate of 70 or even 80%.

The incomes of the top 1 percent — and especially of the top one-half of the top 1 percent — have skyrocketed over the past 30 years. The latest estimates from the Congressional Budget Office show that the inflation-adjusted average income of the top 1 percent of households was $340,000 in 1979 but $1.4 million in 2007, quadrupling over less than three decades. Popular discussion of the top 1 percent tends to highlight how different, say, Mitt Romney and Facebook founder Mark Zuckerberg are from typical Americans. In reality there is as great a disparity between Zuckerberg’s and Romney’s income as between Romney’s and yours. Disparities in income are so dramatic it is difficult to comprehend them.

Not that there’s anything wrong with that! Or rather, it’s not necessarily the case that there’s anything wrong with inequality levels. Whether American-style inequality’s costs outweigh its benefits remains an open question. Too many accounts of inequality today simply assume that it must be bad — that gains at the top have come at the expense of the middle class and bottom, that high inequality has diminished opportunity, that it has stunted economic growth or led to financial instability, or that it has turned our democratic system into a “plutocracy.” But there is scant evidence for each of these propositions.

Note, first, that the CBO data indicates that median household income — the income of the person in the middle of all households — rose by 46 percent from 1979 to 2007, and the income of the average household in the bottom fifth has risen by a similar amount. To be sure, that’s a smaller increase than Americans saw in the 1950s and 1960s and a much smaller increase than the top has seen. But it’s not the case that the middle class and poor have been doing worse over time. (Male earnings have not increased much over recent decades, reflecting the competing away of the union-based advantages that in earlier decades sent pay levels above what productivity gains would have dictated, but analyzed correctly, the data shows they have not fallen either. Female earnings have risen smartly.)

This is the second response to an excerpt from Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published this week by Penguin Press. The first response can be read here.

Today’s plutocracy, as described by Chrystia Freeland, can make for an ugly spectacle. It is an increasingly stateless and distant class. The very rich may sometimes dress scruffily or express an affection for common tastes, but their wealth naturally separates them from the rest of the public. It isolates them physically, as they flit from palace to palace in private jets. And it isolates them psychically, as they grow comfortable with the view that their wealth is not merely the fruit of talent and work but the mark of superiority.

Their wealth and isolation often contributes to a shortfall in empathy (or exacerbates a pre-existing condition, which may have helped raise them to plutocratic status in the first place). They are more likely to feel deserving of rewards, well-earned or ill-gotten. And they are less likely to feel a twinge of hesitation or regret when inflicting hardship on business partners or employees in the name of efficiency and profit.

This is a response to an excerpt from Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published this week by Penguin Press.

It’s great to be what you people are now calling a plutocrat.  I know.  I am one.

We plutocrats live incredible lives, surrounded by luxury and insulated from risk and discomfort.  Things have gone very well for us over the last several years.  Since George Bush left office, the stock market has doubled, we got a (sweet!) $700 billion rescue of the financial system, and corporate profits are at a 50-year high.  BOOYA!

This is an excerpt from Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published this week by Penguin Press.

Pittsburgh was one of the smelters of America’s Gilded Age. As the industrial revolution took hold there, Andrew Carnegie was struck by the contrast between “the palace of the millionaire and the cottage of the laborer.” Human beings had never before lived in such strikingly different material circumstances, he believed, and the result was “rigid castes” living in “mutual ignorance” and “mutual distrust” of one another.

The twenty-seven-story Mumbai mansion of the Ambani family, rumored to have cost a billion dollars, is just seven miles away from Dharavi, one of the world’s most famous slums, and the gap between these two ways of life is even wider than anything Carnegie could find in the Golden Triangle. So, for that matter, is the difference between Bill Gates’s futuristically wired 66,000-square-foot mansion overlooking Lake Washington, which is nicknamed Xanadu 2.0 and whose library bears an inscription from The Great Gatsby, and the homes of the poor of Washington State, where unemployment in 2012 was slightly above the national average.