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Friday, July 1, 2022

Wealth Disparity is a Growing (and Dangerous) Threat to Democracy

Bill Gates’ house (Image: Wikimedia)

Over the past year, new research has shown how a phenomenal accumulation of wealth has become concentrated among just 1 percent of Americans over the last four decades. If that trend continues, our future as a democracy will come to an end. So, the first step is to recognize it, and the second is to address it now. 

This trend was quantitively demonstrated in a RAND Corporation paper, Trends in Income From 1975 to 2018 by Carter C. Price and Kathryn Edwards. They used a time-period-agnostic and income-level-agnostic measure of inequality that relates income growth to economic growth. A summary and commentary of their work by Nick Hanauer and David M. Rolf is readily accessible to the public in Time. 

The RAND study shows how from 1947 through 1974, real incomes grew close to the rate of per-capita economic growth across all income levels. Since then, Americans whose wealth was already in the top 1 percent have received a much larger share of our nation’s economic growth. At every income level up to the 90th percentile, wage earners receive only a fraction of what they would have received if the inequality ratio had held constant from 1974. In real wages, this means that an employee today with a median individual income of $36,000 would have received an additional $28,000 using the CPI as a measurement of growth. That comes out to an additional $10.10 to $13.50 an hour on top of the current wage.

Critics charge that the growing gap in wealth among Americans is not a random economic trend but a politically driven plan to protect a select group’s capital and their ability to increase it through manipulating our democratic decision-making process.  Political scientists Jacob S. Hacker and Paul Pierson, in Let them Eat Tweets: How the Right Rules in an Age of Extreme Inequality, argue that the Republican Party has merged plutocratic economic priorities with a right-wing populist appeal that threatens American democracy. In a YouTube interview referencing decades of research, Hacker and Pierson explain the doom-loop of tax-cutting that characterizes the Republican strategy.

Sen. Sheldon Whitehouse believes that the GOP approach is undermining our democratic government. His presentation during the confirmation hearings of Amy Coney Barrett to the U.S. Supreme Court details how untraceable money from people “with practically unlimited resources have [manipulated] that most precious of American gifts—the vote.” It’s not just the popular vote they are attempting to control but also the votes in Congress to protect and expand their wealth.

 A ProPublica piece by Justin Elliott and Robert Faturechi, Secret IRS Files Reveal How Much the Ultrawealthy Gained by Shaping Trump’s “Big, Beautiful Tax Cut” uncovered confidential IRS records. They show billionaire business owners deploying lobbyists to make sure Trump’s 2017 tax bill was tailored to their benefit.

Wisconsin Republican Sen. Ron Johnson threatened to vote “no” on Trump’s tax cut unless it included a pass-through provision as tax relief for “small businesses.” The reporters connected that tax break to two families of the largest donors to Johnson’s and Trump’s campaigns. They contributed around $20 million just to groups backing Johnson’s 2016 reelection campaign. That is a lot of money, but they also netted $215 million in tax deductions in 2018 alone from Johnson’s altering of Trump’s original tax-proposal package. Elliott and Faturechi’s finding was based on lobbying and campaign finance disclosures, Treasury Department emails and calendars obtained through a Freedom of Information Act lawsuit, and confidential tax records.

Why haven’t revelations like these prompted a populist movement to redirect tax benefits to the shrinking middle class? Unfortunately, that potential political movement has been hindered by a narrative, primarily pushed by the Republicans, that any increase in a tax will lead to less money in the average voter’s pockets and less freedom in their daily lives. Republicans stuck to that message in opposing any new tax on the wealthiest to help fund President Biden’s legislation investment in our dilapidated infrastructure, disregarding that it would have created a more robust economy and significant employment opportunities.

A tax on the top 1% or even the top 10% of the population does not lessen the income of wage-working families. However, the growing wealth gap is not seen as important by those families, and polls of voters show that the distribution of wealth lands near the bottom of their concerns. This attitude may be partly due to the perception that to close this gap, socialism would result, which the Republicans repeatedly link to the authoritarian governments of Russia or China.

However, the two biggest communist governments in the world are experiencing the same growing wealth gap within their populations as the largest capitalist country in the world. Why is that? Even though Russia and China pledged to create an egalitarian society and the U.S. professes to protect individual freedoms, all three have removed or reduced regulations on their domestic market that would stop elites from monopolizing it. These elites may come from inherited wealth or political party status or just individuals working within each country’s economic system. The result is the same. A concentration of capital resources among fewer people is happening in both communist and capitalist countries.

For a moment, let’s look at what is happening in Russian and China. The grandest and longest experiment in eliminating the excessive concentration of wealth would be the Soviet Union. As the Soviet economy was formed, the royalty and the farmers who owned their land were stripped of their property or killed because they hindered the creation of an egalitarian society. In some ways, that objective was achieved. For example, in the 1970s, the Soviet Union was heralded as a nation that had succeeded in providing more housing for its citizens than the U.S.

However, 30 years later, a new wealthy elite has emerged, one that rules Russia. Timothy Snyder, in On Tyranny, argues that the Russian oligarchy came to power after 1990 due to the efforts of President Vladimir V. Putin. They remain in control, not only destroying that country’s democracy but working to destroy democracies elsewhere.

China, the world’s largest “communist” nation (and like Russia, communist in name only), is now struggling with how to contain its wealthy oligarchy, according to an article in Foreign Affairs by Anko Milanovic, a professor at the London School of Economics. Milanovic believes that “inequality has become the Chinese system’s Achilles’ heel, belying the government’s nominally socialist tenets and undermining the implicit contract between the rulers and the ruled.”

The number of billionaires in Russia and particularly China has mushroomed. Beijing has more billionaires than New York City. If Hong Kong is counted along with mainland China, the U.S. drops behind China in the number of billionaires. Russia currently has the fifth-largest number of billionaires in the world. Neither China nor Russia come close to having a democratic government or society, so the public has limited opportunity to close their wealth gap.

Some historians argue that there will always be some variation in the distribution of wealth in a society. In Sapiens A Brief History of Humankind, Yuval Noah Harari notes that it may have begun when agriculture replaced foraging about 10,000 years ago. The resulting surplus food begat a “pampered elite.” Promoting the concentration of wealth in a society is rarely acclaimed as a goal by the rulers. Nevertheless, a history of revolutions initiated by the disenfranchised seems always to result in sustaining some noticeable gaps in wealth among the population.

So, what is to be done about America’s growing disparity in wealth? As long as we have a functioning democracy that allows the public to shape our laws effectively, we can halt the growth of the existing wealth disparity and even reverse it. Our political parties must educate the public that it takes resources to maintain a stable and relatively equitable society.

When the wealthiest do not pay their fair share of taxes, that society will witness populist movements pushing for radical and usually undemocratic changes. Coming from either the left or the right, populists will support more opportunities to improve people’s lives. But, without a solid democratic framework that promotes the civil rights of all citizens, like encouraging the right to vote, their changes will not halt the re-emergence of powerful, wealthy elites, as is happening in Russia and China today. 

The path forward is to establish a fair tax structure to stop excessive wealth, and hence political power, from being accumulated by just a sliver of the population. Part of this reform is a tax system that does not reward speculation more than wage labor, as ours does now. Any political party stubbornly resisting a tax on those ablest to pay is traveling a fool’s journey. They enter a long dark tunnel with no satisfying end in sight. 

Nick Licata
Nick Licata
Nick Licata, was a 5 term Seattle City Councilmember, named progressive municipal official of the year by The Nation, and is founding board chair of Local Progress, a national network of 1,000 progressive municipal officials. Author of Becoming a Citizen Activist. http://www.becomingacitizenactivist.org/changemakers/ Subscribe to Licata’s newsletter Urban Politics http://www.becomingacitizenactivist.org/

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6 COMMENTS

  1. “Why haven’t revelations like these prompted a populist movement to redirect tax benefits to the shrinking middle class? Unfortunately, that potential political movement has been hindered by a narrative, primarily pushed by the Republicans, that any increase in a tax will lead to less money in the average voter’s pockets and less freedom in their daily lives.”

    Here the party in charge pumps out a diametrically-opposed “narrative.” The incessant state and local sales tax hikes, the regular increases in vehicle-related taxing, and all the property tax increases target what’s left of the middle class for disproportionately-large adverse financial impacts. These kinds of “soak the poor” taxes are worst in the country here. The narrative used by this state’s political leadership to push and justify them is both simplistic and false: “We have no choice.” The fact that one party has had control of at least one chamber and the governor’s mansion in Olympia for thirty years belies its narrative.

    The core problem with politics (and journalism) around here is the practitioners proudly exhibit both willful ignorance of public financing best practices and deliberate indifference to the bad impacts of their “tax and spend” policies. We’re extreme outliers here, and both journalists and politicians pretend tax policies are both normal and comparable to how Democratic Party officials behave elsewhere.

    • Oh my, the muddled logic. It costs money to run the cities, states and country we live in. Your definition of what the common good is and mine might be different, but it costs money to make things work. So how is that to be paid for? Why do we have to have tolls and fees for basic services and gas taxes? Because there hasn’t, indeed, been another way to pay for even basic services, and these are the only ways “those in power” could pay the bills. So our roads and bridges are a mess, etc etc. This is a result of one party refusing to engage in trying to develop solutions and whose only battle cry is fewer or (preferably) no taxes, ever.

      Yes, we live in one of the most regressive tax states, but there have been numerous attempts to pass a state income tax, which have failed. As (for the most part) have attempts to make wealthy corporations pay more. While we are home to some of the largest mega-corporations on the planet as well as some of the world’s richest people, we have set up a system where they disproportionately benefit from being here without paying much to maintain it, let alone make it better. That is not to demonize them – they do indeed make things better by being successful and employing many, and they have operated under rules and a tax system we ourselves have set up. But the world changes, they have benefitted mightily, and it is fair to reassess what a fair share of investment in the common infrastructure is.

      Yet reflexive condemnations of “tax and spend” as an all-purpose epithet that is enough to shut down any debate are childish. Such dismissals of any attempt to solve problems and pay for what needs taking care of to make things better are simplistic, tiresome and unhelpful. I wonder why anyone listens anymore.

      • Your first paragraph begins with the axiomatic proposition that governments require revenues. It then avoids what I commented about (excessive sales taxes and yearly taxes based on selected properties’ values), and throws up a falsehood. Seattle always could have raised substantial revenues using a corporate profits tax imposed as a condition of getting a business license. It never has done that, and its puny new tax based on payments to large employers’ well-compensated workers is puny compared to the sales and property tax levels governments around here slam on what’s left of the middle class. The Republicans haven’t had effective control of the state and local governments here for decades which means all the governments’ policies including fiscal policies are EXACTLY what the D leadership wants.

        The attempts to impose income taxes were kabuki theater and doomed to fail.

        Corporations here should be excused from nothing here vs. elsewhere in terms of getting taxed. Your suggestion to the contrary is offensive and your suggestion that everyone they don’t pay is benefitted by “employing others” is condescending and flat wrong.

        What you should have posted is this: “Large employers here should bear a comparable, or increased, share of the governments’ revenues in light of how NYC, LA, Portland, Chicago, SF, etc. tax.” Make sense? Your journalism experience comes from working at the PI, right? That was a hotbed of apologists for the deviant government fiscal policies around here.

        As to your invectives at the end against me raising these issues – I want to encourage discourse on superior public finance methods, tactics and approaches.

  2. “Part of this reform is a tax system that does not reward speculation more than wage labor, as ours does now.”
    Are you advocating eliminating speculation in the stock market, in small business start-ups, and in investment in a home or other real estate, by eliminating the profit incentive ?
    What you are really saying that it is not fair to earn more than most. If you earn $1,000,000.p.y. and pay $400 in tax per day, that is not enough……
    Nick, That the political class (both parties) along with the lobbyists make the rules is a given. If you check the Congress and Senate members, you will find most are millionaires if they have been in office for a term or two. Unless you consider millionaires middle class, you are advocating that moderately rich people will regulate the ultra-rich that supply the campaign funds that keep them in office. If you start advocating term limits and real campaign finance reform, there may be a chance to stop the train.

  3. Your statement “Why haven’t revelations like these prompted a populist movement to redirect tax benefits to the shrinking middle class?”
    ??
    Sir, have you heard of Bernie Sanders?
    The populist movement he has inspired, and which is hopefully growing, addresses all the issues you talk of in your piece. Yet, it’s not only rich Republicans which seek aggressively to stymie such policies….it’s also rich establishment Democrats who inexplicably choose to perpetuate a system in which Bernie’s social democratic dreams are the enemy. They too get elected by the same huge pots of money as Republicans. Have you ever looked at those campaign contributions? They generally hover around the same big numbers on each side of the political spectrum, give or take a bit depending on the election and who is most favored to carry out the master’s nihilistic financial aspirations.

    Yet Sander’s campaigns, and those of the progressives he’s birthed downline….do not rely on this completely corrupted capital. His voice and the voices of a growing caucus, are then allowed to remain strongly in the camp of a more fair taxation, a more just social programming—which will always need to START in this lopsided nation, with re-establishing taxation on the wealthy–as we did during all the administrations post-WWII until Reagan.

    You use the two world power examples of China and Russia—both of who took their beating and cues straight from the uber-capitalist America. But neither had a practice of individual-protecting democracy underpinning their quick-rise capitalism…they only adopted the going-for-the-money part.
    Why didn’t you mention any of the best-practices of Western European nations? They have strong portfolios of individual democracy, fair taxation, social programs including higher education for all, medical access….and they still seem to be generating a healthy economy, and a more regulated but vibrant capitalism.

    Money, not the good of the people, drives everything here.
    Every system we live under…food, medicine, transportation, housing, energy, banking and finance, etal. has now found firm entrenchment and ownership by the ever-filthier wealthy. Subsequently, POLITICS has been almost completely hijacked.

    First, get money out of politics…rework the political financial system—without that, we don’t stand a chance of spiraling the health of our democracy and also of money, back down to the people.

  4. Addendum: the fact that Jamie Dimon of JP Morgan is one of the richest CEO’s in the world rather than in federal prison after his company’s behavior before, during, and after the 2008 financial crisis….is an attestation of who we are and what we value.
    The metaphorical value of his heart attack at this same time, is priceless.

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