Symposium | Beyond Neoliberalism

Raise My Taxes!

By Chris Hughes

Tagged Economicsneoliberalismtaxers

In April, I got a call from a Democratic congressman who won by a large margin in a purple district last year. Our chat began civilly enough with talk of Little League games and a shared sense of pride about the diversity and tenacity of the new class of congressional Democrats. The conversation then turned to Medicare for All, a postal bank, and the Green New Deal—and that’s when we hit a wall. “What a great rallying cry, right? But everybody knows we can’t do all of this stuff,” the congressman said. “It’s just too expensive.”

The dismissive tone of his statement gnawed at me for weeks. Here was the same appeal to “common sense” that I’ve heard invoked in conversations about progressive policies for most of my adult life. We have good ideas, but we are fiscally responsible and need to be politically realistic: After all, American voters just don’t like taxes. Inspiring conversations about what we might build together fall like a sputtering rocket ship back down to Earth when someone, no doubt from a place of good intent, asks the question, “All of that sounds good, but how are we really going to pay for it?”

It is, by all means, an important and pressing question, and it has an equally important and pressing answer that we should confidently give: with more taxes and, when appropriate, government borrowing. More government spending, when smartly invested in useful programs, amplifies American prosperity.

This is a hard statement for many in the center, including a lot of Democrats, because our worldviews have been so tainted by perverse notions of “fiscal responsibility” and the lurking idea that taxes take from the deserving and give to the undeserving. We have been told that government is a bureaucratic force helping people who should largely help themselves. The racialized insinuations of these statements are only thinly veiled; the specter of the “welfare queen” lurks behind any government investment.

In the late 1970s and ’80s, market-obsessed political activists purposefully sowed this cynicism about government and our tax dollars into American political debate. They were energetically supported and enabled by an ideologically homogeneous group of economists who believed markets might very well solve everything. Together, they took advantage of the bad monetary policy and mismanagement of cities of the 1970s to mislead Americans into believing that runaway inflation and chaotic communities would be (and were already) the inevitable outcomes if the American government didn’t balance its books. Waste and bureaucracy reigned in Washington, they asserted, and all those taxes corrupted what would otherwise be a “free market” of entrepreneurial small business owners. They didn’t just argue for government to tighten its belt, and they certainly didn’t argue for better management. They demanded demolition.

President Ronald Reagan, ironically, preached a gospel of dismantled government while relying on deficits to actually expand government in ways he saw fit. He convinced Americans that he was the responsible Dad the country had been missing, and we are still living in the shadow of his storytelling arts. Democratic leaders have felt compelled to echo and reinforce his supposed fiscal responsibility, and in so doing, they have calcified the narrative that big government is bad and that any additional taxes need to be modest and responsible. Just a few months ago, Barack Obama reminded House Democrats of their responsibility to think practically about how to pay for bold progressive ideas like Medicare for All and the Green New Deal.

Today we see the fruit of this cabal’s work. We glorify entrepreneurs who break government rules, the bad boys taking on the unjust, faceless State. Many talented young people want to build an app to solve poverty rather than go into government service to build better public policy. Even amongst reliable lefties, it is commonplace to hear gripes about government ineffectiveness, with little recognition of the onslaught of disinvestment and privatization purposefully deployed to weaken government and cultivate this cynicism about our ability to collaborate to create institutions that work.

To be fair to Obama and two generations of Democrats, they have surely felt pinned in, lacking any alternative narrative. The once fringe ideas of neoliberal thinkers drifted into the mainstream in universities across the country, teaching the next generations of lawyers, economists, sociologists, businesspeople, and policymakers that markets are always dynamic and productive, while government tends to be bureaucratic and ineffective. Nancy MacLean and Jane Mayer have chronicled the rise of these ideas and how the infrastructure supporting it successfully fostered skepticism of government, precisely because it empowered the historically disadvantaged, including people of color.

We need to begin the work of championing government as a force for good, and there is no better issue to reset the paradigm than the role of tax policy. Taxes in the United States, particularly those on high earners, need to be higher, not because they’re a punishment, as some would have us believe, but because they help us build communities where every American has the freedom to thrive. (I am part of this .1 percent, thanks to a lucky windfall following Facebook’s IPO, which gives me a direct view into how the top echelon experiences today’s inequality, and the confidence to know the wealthy can indeed pay significantly more.)

Taxes pay for the critical government services that create security and abundance. Roads, schools, and the legal enforcement of contracts—these are all paid for by tax dollars and make well-functioning markets possible in the first place. At the same time, the way we go about taxation gives us the opportunity to organize our society in a more just fashion. Some research has suggested that the connection between taxes and good government is weak in many Americans’ minds. We should change that, because leading with taxes enables us to talk about what public power can do. The Supreme Court Justice Oliver Wendell Holmes Jr. is reported to have once said, “I like to pay taxes. With them, I buy civilization.” If progressives don’t make that case today, no one else will.

One straightforward way to highlight the productive power of taxes is to name what we get for what we pay. We pay a relatively modest sum when compared to other advanced economies—$5.3 trillion in local, state, and federal taxes in 2016, about 28 percent of overall economic output—or about $18,500 for each American adult. For that amount, we get so many government services a single list can’t do it justice: old-age insurance and health care, schools and colleges, roads and bridges, police and fire protection, the largest army in the world, including nearly 7,000 nuclear warheads, dozens of GPS satellites and national parks, and government regulation that ensures we know that the drugs we take are safe, that the drivers on the road are licensed, and that our planes won’t fall out of the sky.

Or we might make the case for higher taxes by focusing on their productive power to increase economic output. Government makes possible robust and (somewhat) regulated markets where goods and services can be bought and sold between innovative sellers and informed buyers. Without an educated workforce, the Interstate Highway System, and the reliability of the rule of law, American GDP would be a fraction of what it is today. We skip through this point so often that it sounds silly to ask a question as broad as “What do roads contribute to GDP?” or “What would GDP be like without air traffic control?” But it behooves us to remind ourselves and other Americans that without the work of the state, little economic growth would be possible at all.

Economic statistics measure only that which is tradable and quantifiable. But government services, when they’re at their best, make possible security and abundance that doesn’t always create market value. Clean air, safe communities, or the excitement of a young child to share what a teacher taught her in school today do not appear in GDP statistics, and yet they are what help us feel secure and able to thrive.

Perhaps most importantly, the taxes we levy are a powerful way for us to organize our society along the lines that we think will be most fair. Taxes from the first days of the republic were used—often unjustly, as centuries of racism show—as a way to design our social body so that it reflected our national values. At the start, the founders created a legal system that assumed that a thriving white middle class would be in active control of government—a representative institution expressing that class’s needs.

Heavy taxes on the wealthiest were a core piece of this vision. “We are all the more reconciled to the tax on importations, because it falls exclusively on the rich,” Thomas Jefferson explained in letters that the historian Jill Lepore has resurfaced. “[T]he farmer will see his government supported, his children educated, and the face of his country made a paradise by the contributions of the rich alone.” (Jefferson’s prototypical “farmer” was, of course, a white one.) The progressive income tax and the estate tax, both implemented a century later, continued in the tradition of asking the rich to pay more by recognizing that those who are the most fortunate have a special responsibility to ensure that every American has a fair shot.

On several separate and important occasions, particularly in the years leading up to the Civil War, in the Progressive Era, and later in the New Deal, we’ve embraced our public power to restructure our economy and society to work better. Every time inequality has become too extreme, America has either undergone civil war or a significant change to our legal and economic system. In 1860, the wealth of Southern slave-owners had skyrocketed as the result of a tenfold rise in cotton production in the preceding decades, creating untold human suffering through slavery, as well as economic inequality between whites. The Civil War severely damaged the American economy, but it ended the barbaric practice of slavery, dismantled much of the wealth of the Southern gentry, and established wage-based labor as the only option in America. (Sharecropping, Jim Crow, and the ability of former slave-owners to bounce back mitigated these advances in the years following.)

At the end of the nineteenth century, a new set of Gilded Age titans—who had made vast fortunes in oil, banking, and railroads—emerged. American progressives responded with a wave of structural reforms and constitutional amendments that made possible progressive income and estate taxation, antitrust laws, and wage and labor standards. Two decades after this reform wave subsided, the New Deal, extensive public works programs, regulation of the banking system, and insurance for the elderly and unemployed ensured a basic level of economic stability and security.

Today’s crisis is different, but the need to restructure our economy is no less dire. While official unemployment numbers are low, Americans are struggling to keep up as the cost of living balloons, a result of a dismantled and weakened government. Income inequality has returned to levels that haven’t been seen since before the Great Depression, with the top .1 percent owning as much wealth as the bottom 90 percent of Americans. We need to introduce historically large taxes on the most fortunate, not just for the revenue that they will yield, but for the type of country they will create.

Senator Elizabeth Warren has proposed a new wealth tax of 2 percent on assets greater than $50 million and 3 percent on assets above $100 million. This is a great start. Her proposal would go right to the heart of the problem in the American economy today by taxing the vast stores of wealth that our weak tax policy has helped create. As economists have pointed out, the top .1 percent of Americans currently pay 3.2 percent of their wealth each year in taxes, while the bottom 99 percent pays 7.2 percent of theirs. Warren’s wealth tax would increase the amount that the ultra-rich pay by to 4.3 percent, still falling short of evening it out with what the rest of taxpayers pay.

Other taxes could get closer to evening out that disparity. Most Democrats—and by a large margin, most Americans—agree that we should tax capital gains at the same rate as ordinary income. Congresswoman Alexandria Ocasio-Cortez has proposed raising marginal rates on all income above $10 million to 70 percent; still lower than they were for much of the twentieth century, when economic growth was resilient and entrepreneurship rates were higher than they are today. Still other leaders have discussed a carbon tax, a financial transaction tax, and a higher estate tax—all of which have merit. There is of course some theoretical limit to how much we should tax, but we are so far from that point today that it would be self-defeating to limit ourselves off the bat.

If we want to make the tax code more progressive, we also need to lower tax rates on the bottom simultaneously. The most effective way to do so would be to modernize the existing Earned Income Tax Credit, as I proposed in a book last year. We should expand and simplify this credit so that poor and lower middle-class Americans get a reliable infusion of cash directly into their bank accounts via direct deposit every month. Specifically, every working adult making less than $90,000 can get a monthly tax credit of a few hundred dollars to help keep up with the rising cost of living. If we expand the definition of work to include the nonpaid labor of adults caring for young children or the elderly and students in school, we can lift more than 14 million people out of poverty immediately. Several presidential candidates, including Senators Kamala Harris and Cory Booker, and South Bend Mayor Pete Buttigieg, have expressed support for this kind of approach.

The politics of talking taxes—particularly raising rates on the high end—are promising. Sixty percent of Americans, including 45 percent of Republicans, support the idea of raising rates on income above $10 million to 70 percent. Similarly, 60 percent of Americans—including 50 percent of Republicans—support Elizabeth Warren’s proposed wealth tax on assets over $50 million. (By contrast, less than 40 percent of Americans support Trump’s 2017 tax cut for corporations and the wealthy.)

Progressives should use this moment to lead on the idea of higher taxes at the top, not just to channel populist outrage, but also to begin to dismantle the narrative of “Free markets can do no wrong.” This work begins by recognizing that we need government in order to support and build strong communities. We need to name the deep history of racism and the exploitation of people of color in order to be clear about why it’s critical that we support all Americans. This may be a challenge for some who are suspicious of public power because they worry government will take the incomes of “hardworking” Americans and use it to support the “undeserving” poor. Many of these people may welcome public power in a suburban, homogeneous local community, but resist it at the level of the federal government when it supports people in need. If we are to make the case for higher taxes to benefit all Americans, we have to confront the fact that government is a way for us to take care of all Americans—and to begin to repair the damage caused by centuries of racism.

Skeptics rarely name the racism echoing in their messaging, the implication that government is just a tool to take from the deserving and give to the undeserving. Instead, they often justify their concerns by highlighting the effect on overall economic output. Neoclassical economists in particular, blinded by the fantasy of a theoretical “free market” that has never existed in the history of civilization, make this argument daily. Having colonized their entire field, they teach tens of thousands of students each year that any kind of taxation is a sacrifice to economic output. The term of art used to describe the effect of taxes is “deadweight loss,” cited every day in classrooms across the country without any sense of irony.

The very graphs of introductory economics cannot be drawn without the support of the state and the taxes required to fund it; something most economists acknowledge while they continue to insist on the importance of the model. No “free” market exists or has ever existed, because every market needs a legal structure to function well. Government provides the roads to access the market, the law that guarantees the property rights, the police to resolve conflicts and disagreements, the currency used to facilitate exchange, and the guarantee of certain labor and wage standards. This is to say nothing of the education provided to ensure that a workforce is well-trained, or the government R&D that helped make so many of our devices possible. Neoclassical economists, at their peril, ignore the role of the state when describing how perfectly free markets work “in equilibrium,” and then choose to portray taxes as a harm to the system rather than as what enables it in the first place.

As we highlight how “free market” rhetoric has been used to justify dismantling government, we need to simultaneously apply ourselves today to ensuring that we get the details of these tax policies right. When progressives have an opening, we will need to be ready to avoid creating new loopholes or exemptions, and to boost the funding of the Internal Revenue Service to conduct audits and ensure that the people who need to comply actually comply. The details of tax policy matter enormously, but let’s not let their complexity be a reason not to pursue ambitious policies. We can’t waste this pivotal moment in our history with incremental tweaks just because they’re easier. Government needs our money and support: Let’s demand that the most fortunate among us step up to the task at hand.

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Chris Hughes is a Senior Advisor at the Roosevelt Institute and a Co-Chair of the Economic Security Project.

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