Slouching Towards Oligarchy

Over on the NYT opinion page, Paul Krugman has breakdown of how the US government increasingly favors wealth – specifically inherited wealth – more than earned income. The whole column is great, you should read it and despair. Contrary to the line about hard-working Americans, here’s how the current crop of super-rich came about:

“…six of the 10 wealthiest Americans are already heirs rather than self-made entrepreneurs, and the children of today’s economic elite start from a position of immense privilege. As Mr. Piketty notes, ‘the risk of a drift toward oligarchy is real and gives little reason for optimism.'”

Most of the rest of the folks on there that earned their billions got it from hedge funds or software, both of which are big on using other people’s money to get rich. That is, the hedge fund manager invests and takes a cut, while the software entrepreneur takes venture capital funding to explode an idea across the world. Not that these jobs don’t take hard work, but let’s be fair, these guys aren’t making their money on wages.

Government tax policies have been encouraging this preservation of wealth since the tax cuts George W. Bush enacted early in his tenure:

“…the top rate on dividends fell from 39.6 percent (because they were taxed as ordinary income) to 15 percent — and the estate tax was completely eliminated.”

The estate tax was created to make the tax code fairer, to redistribute the tax burden so that it didn’t just fall on working stiffs and commerce, but on passive wealth, too. It’s had a redistributive aspect, sure, and helps to prevent any sort of oligarchy taking root from generations of accumulated wealth. And it helps prevent increased inequality, which has a lot of damaging effects on society.

The dividends rule is important, too. You get dividends on stock that you hold personally. Your 401k gets dividends on the assets that it holds, but you get taxed on the 401k as whole, not for the individual pieces in it. And who holds those stock? The wealthiest 10%. They own more than 80% of all stock:


Drawn from the careful work of economist Edward N. Wolff at New York University (2012)

And the current crop of Republicans wants to make things worse. Republican darling and professional haircut Paul Ryan would eliminate all taxes on interest, dividends, capital gains, and estates. As Krugman states, “Under this plan, someone living solely off inherited wealth would have owed no federal taxes at all.”

If we give a damn about work and the people that perform it – and we should, because chances are, that’s us – then this path Ryan and the Republicans want to set us on should terrify us all. As more money concentrates in the hands of a shrinking few, more political power concentrates there, too. In the Citizens United v. FEC decision in 2010, the supreme court ruled that corporations could spend unlimited money in support of political campaigns. And rich individuals could set up a corporation through which they could funnel money to anyone. Because campaigns are so expensive, politicians will then favor those donors who give the most money. Money is power.

Is there a way to put the breaks on this? Sure, but it requires organized effort, it requires fighting people who can muster more resources, and it requires elected officials balancing their attentions. Will this reverse how things have been going? The current political winds have been shifting favorably, but public opinion is fickle and money is patient.

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