May 11, 2022

By Thomas Klikauer and Meg Young

Ever since the 1980s and its Hidden Secrets of Neoliberalism, the “state-is-bad” ideology – with the exception of the repressive apparatus of police, prisons, army, etc. – has become a core imperative of the ideological makeup of the US’ politics.

Letting the pathologies of neoliberal capitalism run wild in society meant – simultaneously – a deliberate and strategically planned ideological PR-offensive (read: propaganda). Such a public relations’ strategy seeks to tarnish any form of tax on the wealthy. This is designed to reduce – or potentially eliminate –any discussion on making the rich pay.

This domineering hegemony seems to have suffered a bit in recent months. Perhaps, this might indicate somewhat of an early withdrawal from the neoliberal zeal of making the rich even richer – through taxation.

Recently, US President Joe Biden has launched a new push for a minimum tax on the super-rich and for higher corporate taxation. What is the plan? The plan is a one percent (1%) wealth tax starting from $32 million, rising to eight percent (8%) from $10bn – just as Bernie Sanders recommends.

Almost self-evidently, there is – and will be – a lot of corporate and conservative lobbying against such plans. Beyond that, there are strong financial self-interests in Congress and even within the Democratic Party. This is one of the biggest obstacles.

Yet, Biden’s tax proposal is also a signifier that shows how times have changed. Supporting this plan is French economist Gabriel Zucman – now at Berkeley – who is considered as one of the most renowned inequality researchers – perhaps apart from another Frenchman: Piketty.

In 2015, Zucman published a book on tax havens – read: where wealth is hidden. Zucman also wrote articles with the aforementioned economist Thomas Piketty. Like fellow economist Piketty, Zucman is also a co-director of the World Inequality Database (WID).  In the US presidential election campaign in 2020, Zucman advised Bernie Sanders and Elizabeth Warren. Moreover, Zucman is the head of the European Tax Observatory. And, much of what is said here is based on his work.

Not so long ago, the idea of a wealth tax was not even considered worthy of a discussion. It was kept out of the picture by wealthy corporations – some of them also owning media corporations, e.g. Fox owned by Murdoch, and others. Yet, in 2020 the issue of tax became part of the US election campaigns.

Last year, the chairman of the Senate Finance Committee – Ron Wyden – proposed a one-time billionaire wealth tax on pandemic profits. During the Corona pandemic, some corporations made serious money while others suffered and died. The tax bill came very close to passing the threshold of becoming a law. This would have taxed monetary gains immediately, to the equivalent of a 20% wealth tax for top billionaires. There was no formal vote, but presumably, only one vote was missing.

On the other side of the coin, a minimum wage of $16 (€15) was considered a crazy idea only a few years ago. Today, it is mainstream. The same goes for the idea of a state-organized universal health insurance – Medicare for All.

Even if one takes a look at the stratospheric popularity of Bernie Sanders and Alexandria Ocasio-Cortez in polls, one can see how much US politics has seemingly moved since the 1990s. Yet, many on the progressive side of politics are still frustrated.

Initially, they had high expectations for Biden. But soon, many progressive projects were blocked by just two conservative Democrat Senators, Joe Manchin and Kyrsten Sinema. They assured that in the end, nothing happened – the neoliberal “make the rich richer” status quo was maintained.

Apparently, some parts of the neoliberal ideology have changed. But this is not “yet” translated into practical politics. If the Biden presidency were to end tomorrow, its net result in terms of a fundamental policy change would be close to a whopping “zero”.

Up till now, the political response to the pandemic has been good, but this was only temporary. In the long-term future, the power of Biden’s presidency will probably diminish soon. The likelihood that the Democrats will lose their – well, almost – majority in the Senate in the midterm elections is very high. On the other hand, nothing is set in stone.

From a European perspective, the United States is a country that favors the rich and in which freedom means, above all, freedom for capital to be profitable – never mind the social impact that costs ordinary Americans a whopping $50trillion, as well as the political, and (perhaps even worse) the environmental costs.

Unfortunately, many people have forgotten what it used to be before the presidency of Ronald Reagan. Reagan and his neoliberal devotees pushed a freak idea – known today as neoliberalism – into political reality.

In the 1950s – between President Roosevelt and third grade actor Reagan – the US had probably the most progressive tax system in the world with income tax rates of up to 90% for the top earners. Corporate media (often owned by billionaires) who are in cahoots with the apostles of neoliberal ideologies have assured that facts like these are almost eliminated from public view.   

In 1941, Roosevelt once declared in a speech at the US Congress that, no American should have an income of more than $25,000 after paying his taxes. This would be equivalent to an income of one million dollars today. Roosevelt called for a 100 percent tax rate on incomes over $25,000. They didn't go quite that far. They agreed on 93%.

This was true until the Kennedy era in the 1960s when it was lowered a little. But at the beginning of the neoliberal era of the 1980s, the tax rate for top earners was still at 70%. At that time, this was the highest among the developed countries. But, in 1986 – when actor-turned-politician Reagan and his neoliberal ideology started to bite – the top tax rate in the USA was suddenly only at 28%, lower than in all other industrialized nations.

The reason for the reduction at that time was that the rich were avoiding taxes in view of the high tax rates. Therefore, it was argued by neoliberals that low rates are better because people – at least - pay those low rates thus minimizing tax avoidances. In fact, before 1986, tax avoidance had become more and more widespread – with no regulations put in place to prohibit it.

Yet, much of this did not just happen out of the blue as the missionaries of the neoliberal ideology likes to pretend. It happened because the government had decided to re-interpret the US law in a certain way – in the neoliberal way. One of Reagan’s first actions after entering the White House in 1981 was to change the income tax – creating a lot of so-called “loopholes” (read: tax avoidance -  trickery for the rich).

Five years later, Reagan was able to – falsely – claim that, the income tax system no longer works. What he meant was that it does not work for the rich for it prevented them from getting richer. And soon a whopping 97 out of 100 senators voted for tax reform to assure their wealth grows while workers are left behind.

Eager voters included Joe Biden, Ted Kennedy, Al Gore, and the entire establishment of the Democratic Party – the somewhat more ‘moderate’ side of the USA’s one-dimensional business party. This business party has a moderate democratic (Democrats) and an even more neoliberal and conservative wing: the Republican Party.

The development of pro-business corporate taxes went a similar way as to the Senate vote. The ideological argument was framed as, we live in a globalized world, countries are competing to attract companies, we can only adapt to this reality and lower tax rates. This has always been wrong – yet it was an extremely helpful ideology.

In reality, any state can decide whether to accept tax avoidance or not. A state can decide to refuse it, fight it, declare it illegal, and prosecute the offenders. Today, with the rather inconsequential agreement on a global minimum business tax of just 15%, there is a preliminary and very moderate step towards more global cooperation on taxation. 15% is very diminutive, indeed. Yet, this move also shows that downward tax competition is not an inevitable necessity as neoliberal ideology has it. Instead, it is a truly political decision.

In recent decades, there has also been another neoliberal argument. Clique supporters of neoliberalism have continuously argued that it is better that we exempt the rich from taxes. In that way, they would finance growth with their profits from which the poor would benefit. The engineered hallucination is that wealth would drip or trickle down.

This is the infamous mirage of a trickle-down effect. Today, Biden – who has voted for tax cuts in the past – seem to have changed his mind. He says that the trickle-down effect never worked. What happened? Times are changing – and took the ideology with it, perhaps.

In 1986 it was still possible to say, maybe trickle-down will work, maybe it will bring more innovations and more economic growth, and society will benefit. But today, we have data from forty years to check whether this is actually true. Has economic growth increased? No!

From 1946 to 1980, the average salaries grew by a 2.4% per year. Then, from 1980 to 2020 – the period of neoliberalism – salaries only grew by a measly 1.4% – a personal victory for Pinochet-loving Hayek.

This is much less than during the post-war decades – often defined as the social-democratic period. During this time, there was much more regulations of businesses and enterprises. Worse, the government had higher taxes for them. And, this is the complete opposite of the neoliberal fairytale that we have been told for years.

Even more important, however, is that growth gains were relatively evenly distributed at that time. In other words, incomes increased with economic growth. But since 1980, all that changed thanks to neoliberalism. The bottom half of the US population has largely been excluded from economic growth.

For the middle class, there were very moderate growth rates of just 1%. And here comes the real reason why neoliberalism exists at all: the richest 1% (a tiny minority) became significantly richer. Among those 1% are the owners of corporate media who have – surprise, surprise – an interest in selling the neoliberal ideology. They never grew tired of telling us how wonderful the trickle-down effect is.

Given all this, it is very problematic – if not impossible – to say that, the US’ tax policy that began during the 1980s was a great success. Today, this has become a rather widespread attitude of the many people inside the Biden administration. It appears as if the Democratic Party has changed – a bit – in the last ten to fifteen years, or at least has learned how to pretend better.

Yet, Biden’s political ideas aren’t the same as those of Barack Obama or Bill Clinton’s. If one examines the videos from Clinton’s 1996 re-election campaign, it’s all about deregulation, tax cuts, free trade agreements, and the fact that the government is “too big” – one of Reagan’s prime ideologies.

Things have also changed with Obama. Just compare the limited response of his government to the financial crisis of 2008/2009 enshrined in Obama’s pro-business and too-big-to-jail pro-banks’ policy. More recently, there was a massive state-financed intervention in response to the Corona pandemic.

Of course, there are still a lot of problems. Just because the ideology of the Democrats is different today - does not mean that politics has also changed – at least not to the same extent.

The number one problem today remains in the political institutions in the USA. There is an over-sized influence of the Senate where conservative minority interests are strongly over-represented.

In addition, there is the great power of the judiciary and the Supreme Court, which also has a strong bias in favor of the conservatives. These are the obstacles to policy change.

Beyond all that, way too many people in the USA are still convinced that the market economy is the machine of social progress and that governments only hinder this. That has been a strong ideology that prevailed over the last forty years.

But if one looks at the serious data and the big trends in economic growth – not just in recent decades but in recent centuries – then one thing becomes very clear: the main engine for growth is mass access to education, health insurance for all, and good public infrastructure. All this requires a sufficient state furnished with the ability to collect taxes.

No state has become prosperous without a dramatic increase in the ratio of tax collection to gross domestic product. There is a strong correlation between the living standards and the size of the government of states – see: Norway, Denmark, Sweden, Iceland, Finland, etc.

It has never been the market and competition alone that drive growth. Instead, it has also been government cooperation and social trust in people, democracy, public spending, and democratic institutions. All this is very important for the development of prosperity. To achieve this, the USA might need something that is not particularly original: massive government investment in decarbonization.

Then, the USA needs a universal state health insurance, as in other richly-developed countries. It also needs a wealth tax because the wealth of the richest continues to grow rapidly leaving the rest behind. With property taxes, the question of implementation always arises. It is often presented as being complicated. But actually, it’s not.

One simply instructs a tax authority to collect information on the largest assets. Some information are already available in various financial institutions. And then you send a tax estimate to those affected saying, your property has the amount of Y, if necessary, please correct the information. And then you have to pay X percent amount of tax on it. And for violations, there is prison for the rich – an outrageous idea.

Perhaps the concept of Bernie Sanders from the 2019 primaries is a good guide. His wealth tax starts at $32 million – those with less: pay nothing. Up to $50 million, the levy is 1%. In the next step, 2%, and then in several stages, up to a maximum of 8% for assets over ten billion dollars.

In Germany and in other European countries, there is a lot of experience with wealth taxes. Yet, they have always been very low. It never went higher than one or two, to a maximum of three percent. By contrast, what Sanders has proposed has been much more ambitious.

However, in view of the enormously increasing inequality in the USA, this is not just appropriate but urgently needed. As for Germany, one might recommend something very similar. The wealth tax in Germany has never been modernized and adjusted, and has now disappeared altogether. So, you will have to start almost from the beginning.

But the information for much of this is already partially available to the tax authorities. Then, you could tax all forms of assets according to their market value, without loopholes and no exceptions for the owners of family businesses – their value can be assessed fairly. A state has the ability to set the limit at which the wealth tax that applies is quite high, so that the poor are exempt, for example. In that way, only people with millions of dollars in assets are affected, let’s say from five, ten or $20 million.  

This would tax fewer people. If we start with the ultra-rich, it will be easier to find acceptance for such a plan. It might put the anti-tax lobbying priests of neoliberalism onto the defensive. In that way, corporate lobbyists and the corporate press can no longer say, this burdens simple pensioners who may have a valuable house but little income, or the owners of small businesses.

If you have more than $20 million in assets, you are very rich. And then maybe you can also pay a little more tax.

 

Thomas Klikauer teaches at the Sydney Graduate School of Management at Western Sydney University, Australia. He has over 780 publications including a book on Media Capitalism.

Meg Young is a Sydney Financial Accountant and HR Manager who enjoys the outdoors, good literature, foreign music and in her spare time – works on her MBA at WSU, Australia.

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