(CONNECTICUT) – President Barack Obama wants to extend the Bush tax cuts for incomes up to $250,000 but let them expire for incomes above that. He also wants to raise the top marginal rate (which isn’t what people actually pay) back to 39 percent, where it was during the Clinton era.
The last time Obama picked this fight, Congressional Republicans didn’t have much to lose, so they forced him to extend cuts in exchange for extending unemployment benefits. But this time, they have Mitt Romney to think about, and it never looks good to defend tax cuts for the rich when your candidate for president is probably the richest ever to run.
But even if he wins, progressivism loses, because Obama and the Democrats are playing a 30-year-old part written by the GOP: The left wants to raise taxes; the right wants to cut them. This has been a winner since Ronald Reagan, and there’s no reason it won’t win again.
Unless the Democrats shift the frame.
No one can dispute that wealth is concentrated at the top. According to a new report by the Congressional Research Service, the top 10 percent of Americans now own more than 74 percent of the wealth. Conversely, the bottom 50 percent of Americans own a little more than 1 percent. This is staggering, but it’s not surprising given the median wage, as of 2010, was slightly more than $26,300 a year, and the average household income was about $50,000.
A widely accepted explanation is that this is the result of free-market capitalism. Only the most marginalized voices dispute this. The mainstream debate is over solutions. Conservatives are optimistic about markets and skeptical of government; regulation does more harm than good. Liberals are optimistic about government and skeptical of markets; regulation does more good than harm.
Yet the premise accepted by both — that upward redistribution of wealth is the result of free-market capitalism — is wrong. The U.S. does not have free-market capitalism. Therefore, the upward redistribution of wealth that we have seen for 30 years is the result of policy and politics.
Broadly speaking, the redistribution of wealth is central to governments. They cannot function without taking money from one person, a taxpayer, and putting in the hands of others, like construction workers who build roads, rangers who patrol our borders or scientists who track outbreaks of E. coli. Indeed, wealth redistribution can take the form of “transfer payments,” like Social Security and Medicaid, but transfer payments, etc., are not inherently “stealing” or “socialism,” as is often claimed.
An honest debate would begin by accepting that we don’t have a truly free market and no one, not even conservatives, wants a truly free market. Then we can begin debating the quality of the choices we make. Once we establish that conservatives don’t care about ideology as much as fealty to power — that they have, in fact, supported policies of wealth redistribution — then liberals would be free to finally ask: Well, if we chose to redistribute wealth up in the past, can’t we chose to reverse that in the future?
But first we have to expose the myth of the free market.
Dean Baker, of the Center for Economic and Policy Research, published an e-book last summer called “The End of Loser Liberalism” that might help. In it, he outlines most of the above political situation, and the first chapter looks at seven obvious and uncontroversial ways in which we don’t have free markets. For brevity’s sake, I’ll note just three.
1. Patents and copyrights. These are laws that give innovators a legal monopoly to charge rates that are far above the market value of those products. Baker notes a $300 billion pharmaceuticals markets that would be closer to $30 billion if government patents were not in place. This is not a free market and “free-market fundamentalists should not be supporting this sort of interference,” Dean writes.
2. Corporate liability limitation. You can’t sue me for damages if, say, my company defrauds you. You can sue my company, but not me. Baker notes that limited liability means that the government protects individuals within corporations from laws that apply to everyone else. “The government is allowing the individuals … to take the property (or even lives) of others without compensation,” Baker says. That’s not a free market.
3. The federal government sets the value of the dollar. If the dollar is high, exports are uncompetitive, leading to trade deficits and low wages. This means that more money flows to the top. “Non-college-educated workers, in the face of competition from low-cost imports, have to work for less to keep their jobs.” This is not a free market either.
Worst of all, progressives have themselves to blame for some of this.
While conservatives have been serving the interests of the rich and powerful, progressives have been happy to help, Baker says, by attacking free-market ideology. In this way, they have deepened the impression that progressives want to raise taxes, thus providing even more rhetorical cover for the cynical power-plays of the political right.
“For the last three decades, the right has been busily restructuring the economy in ways that ensure income flows upward. The rules governing markets, written by the rich and powerful, ensure that this gravity-defying outcome prevails. The right then presents the imposition of rules that it likes as the natural result of unfettered market forces.”