The Politics of Class War

The centerpiece of President Bush's "economic stimulus" plan, ending the so-called double taxation of dividends, is unlikely to have much immediate impact. Its contribution to long-term growth is almost as unlikely. Nonetheless, the proposal has already had one useful effect, stimulating a long neglected discussion of class.

The centerpiece of President Bush's "economic stimulus" plan, ending the so-called double taxation of dividends, is unlikely to have much immediate impact. Its contribution to long-term growth is almost as unlikely. Nonetheless, the proposal has already had one useful effect, stimulating a long-neglected discussion of class.

Democrats and even some mainstream media point out that reductions in the taxation of dividends are a poor mechanism for fiscal stimulus. Only about the top five percent of the population has significant stock holdings apart from pension assets, which are unaffected by the Bush proposal. Since the wealthy generally save a substantial portion of any windfall, their purchases are unlikely to lead to broad-based economic expansion.

Some Democrats have also gone on to attack the class skew in this proposal. Rather than eliminate the double taxation of ordinary wages and salaries, which are taxed through both payroll and income taxes, Bush targets relief at the income stream of the wealthy.

This line of attack elicits a familiar chorus: progressives are engaging in "class warfare." Administration defenders thoughtfully remind progressives that the United States views itself as a classless society. Citizens vote for their dreams rather than their envy or fears.

The conservative rejoinder is effective and correct as far as it goes. Democrats should take it seriously. It won't do merely to suggest that a tax policy favors the rich when a substantial segment of the population remains convinced it will or could become rich.

But for most poor or working-class Americans to become rich, or even to have a chance to achieve a modicum of material comfort, Americans must enjoy equality of economic opportunity. If most Americans are not inclined to demand the rigid equalization of comforts and lifestyles, they do insist on access to those resources needed to get ahead in modern society. Economic policy over the last quarter-century has indeed been a form of class war, a war that has increasingly deprived working and middle-class Americans of just those chances to succeed.

The distributional impact of government depends not just on relative tax shares but also on the benefits and burdens of government expenditures and regulatory decisions. Contrary to Administration claims, the output of government now increasingly benefits established corporate interests. The US economy is crony capitalism run amuck.

Even many moderate Republicans had the decency to express embarrassment about recent Homeland Security legislation that included special limitations of liability for vaccine manufacturers. But this is only the tip of the iceberg. While Congress ponders tax relief for dividend recipients, the Federal Communications Commission has scrapped most rules pertaining to network TV concentration, just as it has already done for radio. Beyond the impact on diversity, such changes are an enormous economic windfall to the established players in media markets. Since the 1996 radio deregulation, the number of radio owners has decreased by 30 and most radio markets have become oligopolies. Media concentration is not only detrimental to would-be media entrepreneurs but also harms the small businesses that advertise on local radio.

The recent waves of media concentration have are only the latest result of long-standing government favoritism. The electromagnetic spectrum was itself a gift of a finite public resource to private interests. That gift was predicated on a requirement that broadcasters serve the public interest, a requirement now waved. On top of that gift, the Federal Government granted these established media spectrum space for so-called HDTV, a gift so outrageous that even then-Senator Robert Dole protested.

Federal dollars also increasingly flow to those who have. At the same time the Administration hopes to tighten federal requirements for such programs as the earned income tax credit, school lunches, and federal housing subsidies, it expands defense, agriculture, highway and security outlays. Military contractors often enjoy the benefits of cost-plus contracts. As the Administration talks of its plans to create a free market economy in Iraq, it grants no-bid, monopoly contracts to such favored giant as Halliburton. Agricultural subsidies defended with the rhetoric of the family farm, provide vastly disproportionate benefits to agribusiness. Publicly subsidized medical research is turned over to major pharmaceutical giants, which then use this research en route to patents of new drugs yielding extraordinary profit margins.

Many of today's highest-flying corporate tycoons enjoy their position not because of entrepreneurial success but because they benefit from public largesse and federally sponsored research. Yet despite much largesse, corporate performance has lagged in recent years all across the board.

Nonetheless, CEO compensation reaches record levels. A Fortune 500 CEO makes on average 600 times as much as the company's lowest level workers, up from 50 times some twenty years ago. With corporate performance throughout much of this period substantially more sluggish than during the more egalitarian fifties and sixties, it seems hard to argue that the mega millions of corporate CEOs are returns to excellence.

Despite widespread instances of public, worker, and shareholder manipulation, the Administration resists changes in accounting rules, pension funds, and worker rights that would better distribute information and opportunities. Even the most recent foray into compassion by conservative Republicans would paradoxically reinforce these trends. A virtually open-ended prescription drug plan tied to membership in private HMOs is a windfall to both industries and is likely over the long haul to vastly increase the costs of government.

Rather than a commitment to equality of opportunity, this Administration is inspired by another strand our history, the Puritan notion that those who are wealthy achieved their success through God's grace. The task of social policy is to ratify their good fortune and their moral worth.

Life, as some conservatives like to argue, is unfair. Talents, luck, and personal history all leave irrevocable residues. Yet social policy need not pile on by exacerbating existing disparities.