Many American citizens are concerned about the growing disparities in wealth and income. Even middle-class Americans feel extraordinarily insecure. They are a doctor's visit or a pink slip away from descending into the abyss of poverty. Economic insecurity fosters and in turn is fostered by other social and psychological anxieties. Immigrants and new ideas can become more fearful in a nation that has always had a rather robust sense of its own superiority and more than its fair share of religious and constitutional fundamentalisms.
Economic insecurity, especially middle-class woes, is soil on which both xenophobic fascist movements and more egalitarian progressive or social democratic politics might build. But for the latter to take root, it must deal not only with racism and suspicion of immigrants but also with another deeply rooted concern, hostility to taxes.
When progressives of any stripe talk about vast disparities and demand fair taxes on the wealthy, they are routinely accused of class warfare by their conservative opponents. And such attacks, though far from universally accepted, resonate with a core of even middle- and working-class voters.
The case for tax reform should begin by showing how our current tax system isn't fair. And the unfairness lies not in overtaxing the rich.
When all levels of government are considered, poor and lower middle-class citizens often pay a higher percentage of their income in taxes than do the wealthy. Once Social Security tax (the employer's part really comes out of the paycheck of the worker) and state and local sales and income taxes plus assorted fees are considered, even lower middle-class workers are paying a startling percentage of their incomes to government.
Warren Buffet has commented on the inequity of his secretary's paying a larger percentage of her income in taxes than he did. Buffet's admission should inspire one rallying cry for progressives. End the unfair tax burden on the working class. In addition, all forms of income should be treated the same. A lawyer's or a plumber's billable hours shouldn't be taxed any higher than the capital gains an investor makes on the sale of stocks or real estate.
To those who argue that such a reform would end the "incentive" to invest in new businesses, progressives need only cite Ronald Reagan. In 1984 Reagan and then-U.S. Sen. Bill Bradley agreed on one of the best reforms of his presidency: tax law that treated all forms of income equally. Government should not be picking winners or manipulating the market. Lawyers and plumbers are as entitled to the incentive to work as plutocrats are entitled to incentives to invest.
Nonetheless, although tax policy under President George W. Bush has been one element in escalating inequality it is far less significant than many progressives acknowledge. Americans generally believe that if I earned it I should be able to keep it. Progressives should respond with a simple and demonstrable claim. Much of the great wealth accumulated during the last two decades is not reminiscent of the Smith Barney commercial: "They make money the old fashioned way, they earn it." Far from being an agent taking money from the productive and innovative and handing it to slackers, government has increasingly granted favors and special privileges to firms and individuals who have either established a market toehold or who are politically well connected.
Consider what would happen if our most popular national sport, professional football, were to implement a draft system in which there was no salary cap and the winner of the Super Bowl received the first pick in the college player draft every year. Can you spell dynasty.
Our modern political economy is built on this perverse model. Congress talks about the scandal of earmarks, but the entire military budget is filled with no bid contracts and deals that vastly outnumber earmarks. The special supplementary funding for the Iraq occupation includes billions in other contracts for favored security contractors.
The Medicare prescription program might be the poster child for the new economy. Government is not allowed to negotiate a low price with the drug firms because such a practice would supposedly violate the principles of a free market. But government opens its piggy bank to subsidize whatever price the corporate drug dealers can extort from multiple consumers. It is almost a license to print money - paid for by the taxpayers.
My late senior colleague at The Progressive, Erwin Knoll, used to argue that local TV stations, with their long-term monopoly control of a spot on the finite electromagnetic spectrum enjoyed virtual licenses to print money. Today, large media conglomerates have been rewarded with free space for HD transmission. Further media consolidation has severely constrained the range of views and ratcheted up their economic power. Not surprisingly, these same media seldom tell stories of the real routes to modern wealth in America. They make money by another told fashioned way, extortion and connections.
Progressives need to talk not only about taxes but also about leveling the playing field.