Preserving Polarization

History teaches us that the “haves” in severely polarized societies do not do well in the “let them eat cake” transitions.  Yet the “haves” in our society would thus seem to be very short-sighted as far as their or their future generations’ life expectancies may be concerned. The party of the rich – by their own admission, the Republicans (who justify coddling the rich as “job creators”) – stand strongly for lower taxes, preserving the special tax rates on persons who make their livings buying and selling assets or running investment funds (even where the specially-taxed “carried interest” managers don’t even invest their own money) or those who can afford to own corporations that make and keep U.S. investment dollars overseas free of U.S. taxes. Many even sign Grover Norquist-drafted pledges not to raise any taxes, ever.

They don’t mind increasing the tuition in public colleges and universities, making student loan bankruptcies infinitely more difficult than corporate bankruptcies, cutting the budgets for public education and reducing the amount available for student aid. With 1% of the U.S. population controlling 42% of the nation’s wealth and with meaningful gun control being decimated at every turn, it’s clear that there will be a lot of well-armed, pissed-off people, tackling continuing reduced earning/buying power for average Americans due to global competition and many more natural disasters that will sap our resources in a severely polarized America. Doomsday-preppers may not be as crazy as they might seem!

As difficult as polarization is and will continue to be for most Americans, the decreasing middle class and the gradual erosion of upward social mobility might be remotely tolerable in a world where hope and opportunity would be the norm. But with contracting educational opportunities and the gradual elimination of estate taxes keeping multigenerational wealth (read: powerful families) intact, the United States is looking more like a banana republic than the cradle of innovation and opportunity.

An August 2012 report released by the Pew Research Center “highlights diminished hopes, too, for the roughly 50 percent of adults defined as middle class, with household incomes ranging from $39,000 to $118,000. The report describes this mid-tier group as suffering its ‘worst decade in modern history,’ having fallen backward in income for the first time since the end of World War II… The new study reviewed 2010 data from the Census Bureau and Federal Reserve, defining ‘middle class’ as the tier of adults whose household income falls between two-thirds and double the national median income, or $39,418 to $118,255 in 2010 for a family of three. By this definition, ‘middle class’ makes up about 51 percent of U.S. adults, down from 61 percent in 1971.” www.foxnews.com/politics, August 22, 2012.

We’re heading in the wrong direction, and the two biggest social equalizers – education and estate taxes – have been reworked in favor of keeping the rich richer, and the rest… well, who cares?! If the lower tax rates and differing rules for “rich earnings” versus “work-for-a-living” earnings were so effective at job and opportunity creation, why has American buying power been falling since 2002, well before the recession? I guess the “theory” of the “rich as job creators” is nothing more than a myth codified in a false political slogan.

OK, on to the other “polarizing” tax issue. We don’t think of estate taxes too often, but it has been a Republican goal to eliminate this “enabler of sustained polarization” altogether. The first slice at estate taxes came in 2001, when the “explanation” was to keep large farms from being broken up or sold by raising the exempted amount in estate taxation. “In 2001, the year George W. Bush became president, individual estates over $675,000 were taxed and the top rate was 55 percent. Now, the maximum tax is 40 percent and only individual estates worth more than $5.25 million are taxed (a figure that will now be automatically adjusted for inflation.” Kenneth F. Scheve, Jr. (a Stanford professor of political science) and David Stasavage (an NYU professor of politics) writing in the New York Times, March 24^th.

So you’d think in times where increasing opportunity and equality would seem to be an international priority, there would be an expectation of using estate taxes as the “great social leveler.” After all, the inheriting generations didn’t earn the underlying wealth; they are simply those with appropriate DNA. But the rich have ways and means… influence unbridled, enhanced by decisions like the recent U.S. Supreme Court Citizens United case. “[J]udging from the experience of other wealthy countries, the opposite may be true. As inequality has risen in the developed world, many governments have been dismantling — not increasing — estate taxes. Countries from Austria to Canada to Sweden have abolished estate taxes outright.

“There is nothing inevitable about high estate taxation in a democracy — even in an era of fiscal inequality, and even if a country is in fiscal crisis. Estate taxes have survived when their proponents have demonstrated that they are needed to ensure shared sacrifice in a collective effort. Over the past two centuries this has most often happened during the most extreme instance of national purpose: mass warfare. In an article published last year in the American Political Science Review, we presented evidence covering estate or inheritance tax rates in 19 industrialized countries over two centuries. This analysis allowed us to see the forces that have shaped estate taxation over the long run.” NY Times. Scheve and Stasavage go on to point out that during the Great Wars, the rich were called upon to bear greater burdens in the military effort, and so their heavier taxation during these wars was made up for in post-war eras resulting in falling estate taxes.

But we Americans have cut our taxes for the rich during the Iraq and the Afghanistan wars, so why are they being rewarded with a phasing out of estate taxes, precisely at a time when too much of our wealth is concentrated in the hands of too few? With so many wealthy Americans voting Republican out of selfishness, not out of a notion that the underlying philosophy of social and fiscal conservatism make a good recipe for America, the fact that those with too much at the top of the economic hierarchy are the first to die in a revolution doesn’t even seem to resonate as a remote possibility in such a modern and developed country as the United States. But even if you really don’t believe the United States will come to such a violent end – and it really might not – wouldn’t it seem prudent to buy a little “next generational” insurance just to be sure? Shouldn’t there be at least a little effort to given educational opportunities open and a little more in the way of estate taxes? Just in case?

I’m Peter Dekom, and enhancing inequality rather than reducing it does not augur well for the longevity of our form of government.