Many of us were disenchanted with President Obama’s compromise that kept the Bush tax cuts in place until 2012. But while it’s easy to fault the president for failing to fight for increasing the tax rate for those earning over $250,000, the reason the GOP prevailed goes well beyond the intestinal fortitude of the current administration. This was a capitulation thirty years in the making.
Ever since the beginnings of the Reagan presidency, Americans have been bombarded by conservative mantras that consistently bemoan the supposed evils of progressive taxation. It is impugned with the pejorative description “confiscatory” or derided as a system that “penalizes success.” And at the heart of this message is an appeal to an atomistic impulse that constantly — and needlessly — pits the interest of the self against the interests of we as an American people.
But beyond refuting these stock conservative narratives, liberals have failed to articulate cogent arguments that frame progressive taxation in economically efficient and morally authoritative terms. The permanent extension of the Bush era tax rates is looming as a central issue in the 2012 presidential election. It is therefore not only critical that several foundational arguments be put forth in opposition, but that they also be part of a wider argument in support of progressive taxation as a vital component of wealth creation for both the individual and society.
Below are a few memes that if successfully injected into the public discourse would help transform the tax issue from being a losing discussion of confiscation into a winning question of basic fairness.
Progressive Taxation As An Antidote to Miserliness
As was the case during the Great Depression, we are currently experiencing an economic crisis of abundance, not poverty. There is great wealth out there, but it is increasingly being concentrated in the hands of fewer and fewer people. Yes, uncertainty plays a role in decreased investment activity. But so does the signature behavior of the miser: hoarding.
Large corporate entities are hoarding profits to pay bloated dividends and executive salaries or simply sitting on them instead of investing back in their businesses or paying their workers a better wage (thus stimulating demand). This is the scenario of savings exceeding investing that the economist John Maynard Keynes warned us about. Only government has the ability to prevent corporate miserliness. It alone can unfreeze credit and get capital circulating again.
When such hoarding takes place, the threat of taxation is a handy device to get money circulating again. A truly progressive system should present such hoarders a choice: either invest a portion of those profits in non-executive salaries and purchasing equipment or pay a premium tax.
The tax compromise of 2010 was a lost opportunity. While the GOP was harping about the national debt, Obama should have used progressive taxation to call the opposition on its campaign of misinformation. Instead of caving in, the president should have used the bully pulpit of his office to explain the economic inefficiency of extending the lower tax rates for our wealthiest citizens. We give tax cuts to those making less than $250,000 because they are more likely to spend it, while those earning above that income line (and especially those earning seven figures and more) are more likely to sock it away, taking money out of circulation. There is little or no stimulus effect to giving millionaires a four percentage point tax break; there is no economic benefit offsetting the widening national deficit that results.
The frame of the miser is a powerful image. More importantly, it is one that is easy to understand. It is Scrooge before his Christmas Eve epiphany; Henry Potter trying to shut down the old Bailey Brothers Building and Loan Association. More importantly, the concept is well grounded in Keynesian economics, defined by the master economist as “unreasonable but insistent inhibitions against acts of expenditure as such.” Indeed, it is a highly emotional term. But unlike many of the inflammatory epithets hurled by the right (“socialist,” “Marxist”), it is an authentic economic term of art.
Perhaps the weakest link in the right’s tax argument is the idea that progressive taxation is based upon a system of confiscating wealth from the useful only to be given to a lazy rabble. This is nothing more than the old tactic of divide and conquer, injecting an “us versus them” aspect into the discourse.
Last year when some of the already wealthy heard that their federal tax rate should be adjusted a mere four percentage points up to 40%, they overreacted by complaining about the costs of nannies and gardeners. In 2003, Michael Novak tapped into this high-end sentiment. He equated progressive taxation with “confiscation” while quite recently his fellow neoconservative Robert P. George argued that taxes must remain low for moral reasons. Both arguments perfectly echo the conservative claim that higher tax rates on the wealthy constitute “a penalty for success.”
This idea has gained more traction than many of us would like to believe. Just recently I spoke with two friends who repeated the claim when I suggested that the well-to-do could handle a modest increase on their federal tax rate — especially those corporate CEOs who either hoard their companies’ profits instead of investing in new equipment or, better yet, workers’ salaries.
But such notions as “confiscation” and “penalizing success” have little to do with the realities we face as a people. “The goal of progressive taxes,” historian Harlan Beckley observed of the economist Monsignor John A. Ryan’s argument on the subject, “…was to equalize sacrifices, not to achieve equality. Taxes should never be so progressive as to discourage socially useful activity or deny rewards for productive efficiency.” To put things into a contemporary context, imposing a 40% tax rate upon an unmarried CEO earning seven figures a year is a bit more just than a rate of 35% — especially when a married laborer earning $35,000 a year pays a federal tax rate of 25%. Even at the higher rate, the former should have more than enough superfluous income left over to meet his daily needs.
And a 40% top federal rate is far from onerous. Writing in the early 1960s when the maximum federal tax rate exceeded 90%, the conservative writer Willmoore Kendall declared that if the top bracket were to be lowered to 40%, it would allow anyone to become “smacking rich.” Kendall’s words should be part and parcel of any argument in support of progressive taxation.
But beyond admissions made against interest by conservative thinkers, the original arguments in support of progressive taxation are as valid today as they were almost a century ago. Again, as Monsignor Ryan observed in 1916:
The reasonableness of the principle of progression has been well stated by Professor [Edwin R. A.] Seligman: “All individual wants vary in intensity, from the absolutely necessary wants of mere subsistence to the less pressing wants which can be satisfied by pure luxuries. Taxes in so far as they rob us of the means of satisfying our wants, impose a sacrifice upon us. But the sacrifice involved in giving up a portion of what enables us to satisfy our necessary wants is very different from the sacrifice involved in giving up what is necessary to satisfy our less urgent wants.”
It is not merely the percentage of taxes paid that defines justice, but the payment in proportion to wealth created by each individual after which the basic necessities of life have been first satisfied. The working poor and the lower echelons of the middle classes should not be forced to pay a “flat tax” rate equivalent to wealthier members of our society; the overwhelming majority of the former’s income goes to basic needs such as food, clothing and shelter. They have little or no superfluous income. Thus, their tax burden should be the lightest.
Those who espouse the evisceration of such useful taxation are frankly arguing on behalf of an oligarchic few. It must be pointed out that there are top tax bracket Americans such as Bill Gates, Warren Buffett and others who understand the discrepancy in sacrifice reduced tax rates for the wealthiest of us produces. With this in mind, those who call for flat rate taxation (Steve Forbes immediately comes to mind) would also be those whose contribution to the common good would be decreased. At the same time, the benefits they derive from that same common good remains unchanged: greater access to power, police and military power protection of their higher amount of treasure, and greater economic opportunity. It is nothing less than the notion that certain individual citizens give less simply because of their higher income status.
The complaint about the cost of nannies and elite private schools for their children not withstanding, progressive taxation does alleviate burdensome national debt; it does finance job-creating infrastructure construction; it does control inflation and it does prevent the concentration of economic power in the hands of the few — all while expanding the ability of more Americans to prosper.
Indeed, the dogmatic opposition to progressive taxation is the economic mindset that elevates the wealth of a few fortunate individuals while the other 98 percent of their countrymen have their right to create wealth impeded. That, in no uncertain terms, is not the American way.
Frank L. Cocozzelli writes a weekly column on Roman Catholic neoconservatism at Talk2Action.org and is contributor to Dispatches from the Religious Left: The Future of Faith and Politics in America. A director of the Institute for Progressive Christianity, he is working on a book on American liberalism.