[Marxism] The Politics of Income Inequality

Louis Proyect lnp3 at panix.com
Wed May 14 10:54:50 MDT 2014


NY Times, May 14 2014
The Politics of Income Inequality
by Eduardo Porter

The years from the late 19th and early 20th centuries were not the most 
egalitarian in American history. Robber barons roamed the economy, 
living off lavish rents generated by powerful cartels and industrial 
monopolies.

The richest 1 percent of Americans reaped nearly one in five dollars 
generated by the economy and amassed almost half its wealth; at the 
other end of the scale, wage earners lost ground to inflation. It was 
the era of the Haymarket riots and Upton Sinclair’s “The Jungle.” 
Workers staged 1,500 strikes in 1886 alone.

Ultimately, though, the disparities in wealth and income led to an age 
of ferment that came to be known as the Progressive Era.

Women got the right to vote. Congress passed the Sherman Act. Chicago’s 
Beef Trust and John D. Rockefeller’s Standard Oil were taken down. In 
1914, Henry Ford decided to raise wages to $5 a day, doubling at a 
stroke most of his workers’ pay.

And crucially, a progressive federal income tax was enacted by 
Constitutional amendment, overcoming the opposition of not only the 
steel lobby and the establishment press, but a Supreme Court that had 
struck down the income tax law of 1894 as unconstitutional.

The weight of the federal income tax has varied widely since it was 
introduced a century ago. It has generally played a progressive role in 
mitigating income inequality. But it is not powerful enough to overcome 
the widening gap of recent decades.

“The present assault on capital is but the beginning,” wrote Justice 
Stephen J. Field in a concurring opinion against the 1894 law. “It will 
be but the steppingstone to others, larger and more sweeping, till our 
political contests will become a war of the poor against the rich; a war 
constantly growing in intensity and bitterness.”

But Edwin Seligman of Columbia University, one of the leading proponents 
of a progressive income tax, ultimately had the winning argument: “Amid 
the clashing of divergent interests and the endeavor of each social 
class to roll off the burden of taxation on some other class, we discern 
the slow and laborious growth of standards of justice in taxation and 
the attempt on the part of the community as a whole to realize this 
justice.”

The United States has come a long way over the last century. Still, it 
remains a strikingly similar place in a couple of important respects.

The income of a typical American family has barely risen since the 
1970s. The share of national income captured by the richest 1 percent of 
Americans is even higher than it was at the dawn of the 20th century.

The parallel offers valuable insight into one of the most important 
questions posed by the nation’s lopsided development: Can democracy stop 
inequality from rising? Despite the gains of the Progressive Era, the 
answer echoing down the halls of history is not encouraging.

Basic models of political economy hold that inequality self-corrects. As 
income concentrates among a smaller group of voters, majorities will 
vote for more redistribution.

But that isn’t quite how the world works. For starters, the poor vote 
less than the rich. And they don’t vote exclusively based on their 
economic self-interest. Many Americans, rich or poor, mistrust 
government. They support free-market capitalism and view the 
distribution of the nation’s economic fruits as roughly fair.

The growing concentration of income can, in fact, make inequality more 
difficult to correct, as the wealthy bring their wealth to bear on the 
political process to maintain their privilege.

What’s more, disparities in income seem to produce political 
polarization and gridlock, which tend to favor those who receive a 
better deal from the prevailing rules, says Francesco Trebbi, an expert 
on political economy at the University of British Columbia in Vancouver, 
Canada.

The American political system may eventually act against the interests 
of the fortunate few at the very top of the pyramid of success. But that 
may be only because many affluent, powerful people just below the top 
notch see themselves as losers from the nation’s economic dynamics.

“The really upset people are those that are well in the top of the 
distribution,” said Nolan McCarty, a political scientist at Princeton. 
“There could be a populist uprising, but that is less likely than a 
battle within the top 1 percent.”

This is, indeed, reminiscent of the Progressive movement, which was led 
not by pitchfork-wielding populists, but by lawyers, college professors 
and others in the upper middle class who saw their future prosperity and 
social standing at risk.

“There hasn’t been the immiseration you would associate with a 
revolution,” Professor McCarty said. “But people are concerned about 
fairness and the way the game has been rigged.”

Is this alignment of forces enough to stop America’s income chasm from 
growing?

Some scholars draw hope from the nation’s history. In his best-selling 
“Capital in the Twenty-First Century,” the French economist Thomas 
Piketty proposes that inequality could be tempered by returning to the 
tax rates of the past. Confiscatory taxes of excess incomes are, he 
says, “an American invention.” If we could raise top tax rates to nearly 
80 percent once, why couldn’t we do it again?

Historical precedent, however, doesn’t justify unbridled optimism. For 
all the egalitarian initiatives of the Progressive Era, it did little to 
curb the concentration of income at the top.

“The Progressive era established the basic grammar and vocabulary and 
syntax of the American policy discussion for a century,” said David 
Kennedy, the prominent Stanford historian. “All the main themes of 
equity and access to democratic institutions and workplace regulations 
came up then.”

But in terms of real redistribution, Professor Kennedy added, 
“relatively little was accomplished.”

The bold new income tax affected only a tiny share of Americans. And 
while the top rate for a married couple was 7 percent, to reach it they 
had to make more than $500,000, nearly $12 million in 2014 dollars. In 
1913, it raised a grand total of $28 million, a mere $668 million in 
today’s dollars.

Justifying hefty taxation of the wealthy required a more compelling 
argument than inequality. The immiseration caused by the Great 
Depression helped. But winning the argument required war. Only the 
prospect of many thousands of poor young men contributing their lives to 
the national project could justify taking more of the elite’s money in 
the service of the national good.

“The idea was conscription of wealth and income,” said Kenneth Scheve, a 
political scientist at Stanford. “The term was used in party manifestos, 
in speeches to Congress. It came up everywhere.”

By 1917, the top federal income tax rate had been raised to 67 percent. 
Though it fell in the 1920s, it would rise again during the Great 
Depression and, especially, World War II. In 1940, before the United 
States entered the conflagration, the federal income tax raised $1.5 
billion ($25 billion in today’s money). By 1945, it collected $17 
billion ($223 billion). The top income tax  rate would not fall below 70 
percent again until 1980.

But what does this historical precedent say about our ability to deal 
with inequality today?

The Great Recession helped make a case for redistribution. Jason Furman, 
President Obama’s chief economic adviser, says that the administration’s 
initiatives — like higher income tax rates, subsidies to buy health 
insurance under the Affordable Care Act and expanded tax breaks for poor 
families with children — have produced “the most significant 
policy-induced reduction in inequality in at least 40 years.” Just the 
tax measures, Mr. Furman estimated, take off about half a decade’s worth 
of increasing inequality, as measured by the so-called Gini coefficient.

Is this as good as it gets? For all the struggle on the part of the 
White House, the income gap keeps growing. Maybe this means that, in the 
absence of war, democracy can’t do much more.




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