Tuesday, July 22, 2014

The Doom Loop of Oligarchy

Tim Graham/Getty Images

In the year's scariest economics book, Thomas Piketty argues that capitalism, left unchecked, subverts democracy by always and everywhere concentrating wealth at the tippy-top. That creates a class with so much economic power that they begin wielding tremendous political power, too. And then they use that political power to further increase their wealth, and then they use that wealth to further increase their political power, and so on.

You might call this the Doom Loop of Oligarchy: wealth buys power, which buys more wealth. You can see it playing out over the last two weeks in American politics.

1) Let's begin with the economics. A new study by economists Emmanuel Saez and Gabriel Zucman shows that the richest one percent of US households have almost doubled their share of the nation's wealth since the 1960s. One percent of the country owns more than 40 percent of the wealth — and that share is rising.

2) In contrast, the bottom 90 percent of the country owns less than 30 percent of the nation's wealth.

3) If you look closely, the rise of the one percent is actually the rise of the 0.1 percent. In the 1960s, this group owned about 10 percent of the nation's wealth. By 2012, they owned more than 20 percent.

4) It's well known that as the rich have gotten richer, the top income tax rate has gone down. In 1960, the top marginal tax rate was 91 percent. It's now 39.6 percent.

Top_marginal_rate

5) Similarly, as the wealthy have gotten wealthier, the estate tax — which taxes inheritances — has been declawed. In 1960, the tax began at estates of $60,000, and the top rate, which hit estates above $10,000,000, was 77 percent. Today the estate tax doesn't even begin until the estate is worth $5,340,000 — and after that, the top tax rate is just 40 percent.

Estate_tax

6) On Thursday, the House passed Paul Ryan's 2015 budget. In order to get near balance, the budget contains $5.1 trillion in spending cuts — roughly two-thirds of which come from programs for poor Americans. Those cuts need to be so deep because Ryan has pledged not to raise even a dollar in taxes.

7) As a very simple rule, rich people pay more in taxes and poor people benefit more from services. So if you pledge to balance the budget without raising taxes, you're going to end up making the rich richer and the poor poorer. But Ryan goes further than that: he actually cuts taxes on the rich.

8) Ryan specifically promises to take the highest marginal income tax rate down from its current 39.6 percent to 25 percent. He also says he'll pay for it. But he doesn't say how he'll pay for it.

9) It's a safe bet that policies like, say, the estate tax — which taxes large inheritances — would disappear under Ryan-led tax reform. His 2010 budget roadmap, which included more details than his more recent budgets, eliminated the estate tax — which Ryan, like many Republicans, calls "the death tax" — entirely.

10) Mitt Romney proposed a similar plan and offered a similar lack of detail about how to pay for it. When the Tax Policy Center ran the numbers it quickly came clear why Republican politicians are so loathe to get specific: even under ridiculous favorable assumptions, they found the plan cut taxes on the rich and raised them on the middle class.

11) So the Ryan budget, as close as the details allows us to tell, cuts spending on programs that benefit poor people in order to cut taxes on rich people. It is easier for heirs to build great wealth if their inheritance isn't heavily taxes and it's harder for the poor to build wealth if they're kicked off Medicaid and need to spend that money on health insurance. So the wealthy will get wealthier and the poor will get poorer.

12) Less than a week before the Ryan budget passed the House, the conservative majority on the Supreme Court made the wealthy even more powerful in American politics. Prior to the McCutcheon v. FEC decision, no matter how rich you were, you could only donate $48,600 to political candidates in any one election cycle. Now there's no cap on total donations (though you can only give $2,400 to any individual candidate).

13) This comes just a couple of years after Citizens United and related decisions made it easy for rich Americans to spend unlimited sums on SuperPACs and other independent political organizations.

14) Wealthy people will be even better poised to influence the 2014 and 2016 elections than they were to influence the 2010 and 2012 elections. Now, wealthy people are not a single voting bloc, but most wealthy people would like to continue being wealthy. And so you see bipartisan movement towards policies that protect their wealth, most recently with the Democratic legislature in Maryland voting to eliminate the state's estate tax.

15) Over time, a political system that gives the wealthy more power is a political system that is going to do more to protect the interests of the wealthy. It's the Doom Loop of Oligarchy, and we're seeing it daily.

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