Tax Justice: The Next Great American Movement

by Jeff Strabone

Brown v. Board of Education. The Voting Rights Act. Miranda v. Arizona. Roe v. Wade. Texas v. Johnson. The Americans with Disabilities Act. Same-sex marriage. Looked at one way, the past several decades in the United States have been an almost uninterrupted series of victories for the American left and its activist model of advancing civil right and civil liberties through litigation and legislation.

Looked at another way—in terms of tax justice, financial regulation, and income disparity—the economic right wing has dominated American politics for the past thirty-plus years. In the face of little popular resistance and with assistance from both major political parties, the richest Americans and the most powerful corporations have had a free hand to rewrite the tax code and the banking laws to enrich themselves, endanger the world economy, and deprive government of the revenues it would need to, as the Constitution puts it, 'promote the general welfare'.

As income inequality in the States approaches banana-republic levels, Americans are finally having a long-overdue national conversation about taxes, banking laws, and economic justice, but why were we not having this conversation all along? The singular focus on civil rights without a comparable commitment to tax justice may also be the greatest failure of the American left. While it is inarguably a great achievement that any child, regardless of color, can now swim in a public pool, that opportunity means little if tax revenues shrink to the point where cities can no longer afford to open the pools, let alone build new ones.

Let me say at the outset that nothing in this article should be construed to question the value or the necessity of the long, ongoing struggle for civil rights and civil liberties. The sacrifices, heroism, and eloquence of the struggle ennoble our history. Our successes on the road to the equal protection of the law are the nation's greatest historical achievements and the envy of the world. But those same victories might today be more widely enjoyed had we paid comparable attention to less obviously heroic matters, like the tax code and financial regulation.

Capitalism per se need not be at odds with civil rights. Indeed, many of the wealthy are socially progressive, as demonstrated by strong support on Wall Street for same-sex marriage in New York State, as reported multiple times by the New York Times. Lloyd Blankfein, CEO of Goldman Sachs, has even made a video supporting marriage equality. The selfish energies that capitalism unleashes in the pursuit and creation of wealth don't discriminate against individuals, but they do require proper government regulation lest they destroy us all.

The reason that twenty-first-century tax rates constitute a political failure is that for most of the twentieth century tax rates were not what they are now: the rich were taxed more, much more, and the United States managed, despite high taxes on the rich, to be a world economic power. Those tax rates changed because one side, the rich, wanted them lowered and the other side, the rest, did not put up a commensurate fight.

Tables comparing the year-by-year highest tax brackets, like this one from the National Taxpayers Union, have been making the rounds of the internet lately. Here are some highlights:

• From 1954 through 1963, income above $400,000 was taxed at 91%.
• From 1965 through 1978, income above $200,000 was taxed at rates that varied from 70 to 77%.
• From 1982 through 1986, the income bracket varied a bit from $106,000 to $171,580, but the top marginal rate plummeted to 50%.
• When Reagan left office in 1989, the highest marginal tax rate was only 28% and it applied to everyone who made more than about $30,000 a year. In essence, progressive taxation vanished.
• George H.W. Bush raised the top marginal rate to 31%.
• Bill Clinton raised it to 39.6% on incomes over $250,000.
• Finally, George W. Bush lowered it again to 35%, where it remains under President Barack Obama.
For more detailed data, see this spreadsheet supplied by the Tax Foundation.

Were Dwight Eisenhower and Richard Nixon communists for presiding over tax rates of 91% and 70% respectively? Hardly. The 1950s and 60s were decades of prosperity for American businesses and working people alike. Then Ronald Reagan was elected president in 1980, and the tax rates for the rich began their dramatic decline.

Income taxes are only one piece of the puzzle. Taxes on capital gains and other so-called 'unearned income' like stocks and bonds have also plummeted to favor hording by the rich. The current capital gains tax rate is only 15%, i.e. lower than the historically low income tax. Comparable declines have occurred in estate tax rates and corporate tax rates. The only aspect of taxation that has risen in recent decades has been the number of tax breaks and loopholes for the rich, like those that now allow dividends and so-called carried interest to be taxed at the same rate as capital gains. (For some of these facts in chart form, see this report by the Center for American Progress.)

What happens when governments cannot collect enough revenue because they have lowered taxes too far? Services break down, public investment comes to a halt, and civil society declines. Here are a few examples of the consequences from around the country.

• Class time in public school has been cut and the school year shortened in California, Idaho, New Mexico, and elsewhere due to budget constraints. (NYT, 7/6/2011)

• Topeka, Kansas repealed its domestic violence law in order to save the money it would have cost to enforce it after the district attorney's budget was cut. (Topeka Capital-Journal, 10/11/2011)

• Large numbers of New York State judges are reported to have quit after twelve straight years without a pay raise. (NYT, 7/5/2011)

• According to the Federal Reserve Bank of New York's November 2011 Quarterly Report on Household Credit and Debt, the total balance for all outstanding student loans, let alone what has already been paid, is $845 billion. Tuition is lower in every other country in the world: all the comparable industrialized countries subsidize tuition more substantially from tax revenues than the U.S. does.

The unbuilt railways, bridges, schools, and hospitals can only be imagined.

An array of powerful organizations lobbies for ever-lower taxes on the rich, the most well-known being Americans for Tax Reform (ATR) and the United States Chamber of Commerce. These organizations robotically oppose every proposed tax increase and every regulation on business. Their in-house experts produce policy analyses, Congressional testimony, and now Twitter messages with the same dogmatic mantra: lower taxes, lessen regulations on business, cripple the government. ATR, headed by Grover Norquist, circulates a pledge to federal and state legislators. Here is the text of the pledge that they ask U.S. House members to sign:

I, _______________, pledge to the taxpayers of the _____ district of the state of__________, and to the American people that I will:
ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and
TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

According to ATR, 238 House members and 41 Senators in the current Congress have signed the pledge. How any sane person could think it a good idea to tie a legislature's hands is a mystery to me.

My point is not that no progressive voices have raised the alarm and advocated for greater tax justice. It is, rather, that the right's forceful, unrelenting advocacy for lower taxes has never been met by an equal countervailing force from the left.

Some may say that it can't be done, that the economic right wing has unmatchable amounts of money and power to spend on promoting its agenda. Let's turn again to the example of civil rights, where we have seen, over and over, the powerless and the outcast rise to victory. In our own times, in just one generation and against unlikely odds, opinion has swung in favor of same-sex marriage. A May 2011 Gallup poll found that 53% of Americans supported same-sex marriage. This rapid turnabout in national opinion is the result of three things: organizing, organizing, organizing.

Surely, we could mount a comparable effort on behalf of taxing the rich like we did in the 1970s so that, you know, good schools could be built and whatnot. The fact that tax rates were much higher in living memory should make this not a hard case to sell. Public schools open five days a week versus more tax breaks for billionaires? I think we can find at least 53% of Americans to choose schools.

The left has powerful, expert voices arguing for tax justice: Paul Krugman, the Center for American Progress, and on and on. But where is the left's equivalent of Grover Norquist and ATR? Where is the pledge that would commit our legislators to putting schools ahead of tax breaks for the rich? Just as the right wing cannot match the ACLU, the NAACP LDF, or Lambda Legal, the left has no dedicated, effective counter to the anti-tax crusaders. (Sadly, the right wing does appear to be successfully rolling back reproductive freedoms.)

And then there's Occupy Wall Street, the movement without any definite policy proposals which has improbably changed the national conversation, to the point where a private-equity baron running for president in 2012 is regarded much more skeptically than a private-equity baron running for president in 2008. As much as I admire OWS, I don't know how much effective commentary they can provide on technical matters like the drafting of the Volcker Rule. (Update: As reader Panopticonopolis points out below, OWS did in fact submit a lengthy comment on the proposed Volcker Rule. Good for them! The story appears in The Nation.)

The teams of anti-tax, anti-regulation experts at ATR and elsewhere need to be met pound for pound with comparable levels of expertise, rhetoric, and advocacy in the opposite direction. A movement for greater tax justice would need tax lawyers, former Congressional staffers, professors and others united for the difficult, technical work of writing new tax laws and regulations. If nothing else, can we at least have a crowdsourcing clearinghouse for all the thousand-page legislative bills that Congress produces these days?

So far, we are failing to mount any fight whatsoever. In the wake of the financial crisis, the new banking regulations offer a telling case. The deadline for comments to federal regulators as they draft the proposed Volcker Rule—which would prohibit banks from trading with their own money—passed on February 13. On February 14, the New York Times reported that regulators were swamped by comments from Wall Street. According to the Times, 'the loudest response came from critics like Wall Street trade groups and banks, who want to soften the rule.' Earlier, the New York Times Magazine reported on December 11, 2011 that 'the S.E.C. held 34 meetings with groups proposing changes to the way the important Volcker Rule, which restricts banks from certain risky investments, is implemented. So far, almost all of these get-togethers have been with big banks and their representatives. Only one has been with a consumer-advocacy group.' Can we at least show up to the fight?

The tax code is a society's moral code. It tells us what our obligations are to each other. No one can be faulted for individually using the tax laws to his or her own advantage: we are all entitled to do whatever the law allows. Nor should we be surprised that powerful interests use their power to try to warp the laws to their own advantage. What is surprising is the absence of a strong movement for greater tax justice, one that will take its place alongside the great civil rights movements and restore the opportunities that make it possible to enjoy one's rights in a sane, healthy society that believes in itself. The time for such a movement is now. May the next several decades of American history be the story of sanity and justice restored to our tax code.