Taxing in Defense of Democracy

I take it as an axiom that capitalism and democracy are fundamentally antagonistic. Democracy is a method for dealing with power, which is the substance of government. The primary method for distinguishing one government from another is how the government’s power is allocated. In monarchies and tyrannies the power resides in one person. In oligarchies it resides in a few people. In democracies it is distributed to all the citizens of the society being governed. Capitalism, on the other hand, is based on wealth. Left untrammeled, the wealthy are in a stronger position to acquire more wealth than is the rest of society. Thus the economic processes of capitalism inevitably lead to concentrations of wealth and hence power. Regulation is therefore necessary to insure that capitalism does not destroy democracy.

We are living through an excellent example of this process. Ronald Reagan began his presidency in 1981 with a promise to revitalize the economy by “getting government off our backs”, his slogan for massive deregulation of business. Most economists agree that productivity did increase very substantially and prices dropped. In brief the capitalist economy was substantially set free to operate in its own terms. However, the fiscal value of the increased productivity was very unevenly distributed. Increasingly the wealth generated went to the wealthy and eventually to what some economists now call the super rich. This process has gone on until we now have the largest gap between the rich and the poor since the end of the 19^th century. This mass movement of wealth to the very few resulted in huge investments in the political process by the wealthy. A massive industry of corporate lobbyists developed to target the wealth of the few on the representatives of the many. As a result the government increasingly reflected the desires of the wealthy. Today the process has gone so far that our legislatures increasingly disregard citizens’ expressed desires to pander to the interests of the wealthy. We have just experienced an election in which the electorate strongly expressed its desire to end the war in Iraq, but those elected on this platform have failed to carry out as clear a mandate as is politically possible. Likewise, the demand for impeachment of Bush and Cheney elicited statements from Democratic leaders that they would pursue this objective. Having won election they promptly declared that impeachment was off the table. Finally, after 35 years of largely unregulated capitalism and the creation of an extremely wealthy miniscule minority we have a regime that has and is attacking our democracy as vigorously as Reagan earlier attacked economic regulation. Up to this point we, as a nation, have tolerated the destruction of our liberties and rights at a pace and to an extent not seen before in this society. We can be imprisoned on the say so of one person. We have no assurance of habeas corpus. Citizens are being encouraged to distrust each other as they are told that Al Queada is training Americans for terrorist attacks. We have even reached the point where one Democratic presidential candidate, Hillary Clinton, has called another Democratic presidential candidate Barack Obama “too liberal.” Bush senior demonized “L” word when campaigning against Michael Dukakis . Now we have it being used by Democrats to attack each other. The sum total of this process is that in thirty years we have gone from a functioning democracy to an incipient fascism and the instrument has been wealth. Well over two millennia ago Aristotle argued that the well lived life requires an adherence to “balance.” We do not seem to understand that democracy is in constant tension between the productivity of capitalism and anti-democratic results it will produce if left unchecked. We need in this country to explicitly acknowledge and teach in our schools that a primary function of government in a democracy is to insure that wealth does not become overwhelming and therefore a fundamental responsability of government is to redistribute a democracy-saving portion of the wealth annually generated to the society. This is what European courtiers have done. This is what we need to do.

This is where the issue of taxes, otherwise not that high on the progressive flagpole, becomes very interesting. In brief, how shall we tax to protect and optimize democracy?

Taxation like economics is regarded as a dismal subject. As such it seldom reaches the rear burner, much less the front burner of progressive thinking. This I believe is a fundamental mistake. Conservatives have made taxes a political mantra. Progressives need not only to show the democratic necessity of taxes but their use to improve life and its opportunities for all citizens. We often see taxes as a source of revenue, but seldom as a means for insuring the continuance of democracy.

To my mind what is needed is some reasonably common measure for equitably determining taxable wealth. From this point of view it would be useful to get beyond possessed assets as a focus for taxing wealth. The consequences for the environmental and social costs of wealth need to be factored in. For example, a recent study published in Science News for January 24, 2007 examined the ecological “footprint” of the wealthy nations of the world compared to that of the poor countries and found that the cost to poor countries substantially exceeded their debt to the rich countries. Interestingly, to obtain an equitable basis for making their comparisons, the researchers used a conceptual device known as the international dollar, which adjusts for purchasing power around the world. As an aside Lester Brown has proposed shifting taxes from labor’s income tax to environmental impact which would both slow down that impact and produce funds to begin repairing the damage we have caused.

After World War II many European countries implemented tax programs that insure a reasonable check on excessive growth in wealth. While the effort was to insure that a significant portion of their gross national product went to social programs, including health, education and quality of life programs, it had the effect of insuring continued democracy as well. Taxes were high, but social benefits were extensive. Take home lesson: it was this demand for social services that was resisted by and led to the ouster of Winston Churchill the enormously popular Conservative wartime leader.

An example of how things go awry when tax laws are not adequately focused on preventing excessive wealth accumulation is the tax exemption for mortgage interest. Decades ago this exemption was provided so that poorer people could more easily afford to become home owners. However, because the tax was proportional to the cost of the home and hence the amount of the mortgage, it was used by the wealthy to buy ever more expensive housing, thereby increasing the cost of housing and thus increasingly depriving the less wealthy from access to housing, the exact opposite of the intended outcome. The law, keeping in mind the need to preserve democracy, should have had a declining deductible as cost increased.

Taxing fiscal activities is also necessary to protect democracy because activities, notably investing, can move money and hence power around the globe at the speed of electrons. Keeping wealth in this fluid environment means that the wealthy can suck wealth from a country before its citizens know what is happening. Read the book Confessions of an Economic Hit Man by John Perkins to get a feel for how this is done. This has been a prime feature of institutions such as the World Bank and the International Monetary Fund. By requiring poor countries to accommodate the desires of wealthy corporations in order to get the money they need, they are forced to privatize and thus lose control of major social assets such as wage support, guaranteed retirement benefits, etc. By depriving the poor of their share of the gross national product the wealthy of this world have not only rearranged national economies to benefit themselves, they have also weakened the citizenry’s ability to protect or promote democracy.

It is high time that progressives think out a tax system focused on human welfare. The conservatives continue their anti-tax mantra. Progressives need to demonstrate that the Reaganesque approach caries the seeds of democratic destruction.

Bob Newhard