Cost of Democracy

This essay was originally published at ActivistLab on May 4, 2017 and has been lightly edited.

At the heart of the debate on taxation is the question of whether it is fair or unfair to heavily tax extreme wealth. The fact is, it does not matter. We must divert most of the money currently held by the wealthiest Americans into public revenue. We need to do this in order for our country, economy, and democracy to function.

No country can maintain a functional economy or healthy democracy when 1 percent of the nation’s citizens own more wealth than 90 percent of the nation’s citizens, or when eight billionaires control as much wealth as three and a half billion people. The United States, with much of the Global North, now suffers from this extreme inequality and our democracy and economy have suffered as a direct result.

This inequality has caused the following:

• recessions,
• economic instability,
• job loss and low consumer activity,
• decreased entrepreneurship,
• and reduced innovation, among many other economic ills.

If it continues, it will likely result in another major depression.

This level of inequality is directly causing the erosion of democratic institutions through:

• elite influence of elections: rich people fund campaigns and run their own candidates (more here);
• elite capture of the lawmaking processes: rich people influence the decisions of elected and appointed government officials;
• elite purchase of media institutions: most major news outlets are owned by millionaires and billionaires; and
• elite domination of civic organizations: rich people’s foundations control and fund a huge proportion of civic institutions.

Extreme inequality has not led to innovation, better jobs, a stronger economy, or a healthier democracy as many right-wing politicians and economists have long promised. It has led to the direct opposite. A worthwhile economy and healthy democracy cannot survive this extreme inequality.

The surest, fastest way to reverse such cancerous inequality is through massive wealth taxes. Transforming the sedentary, hoarded capital currently recirculating through tiny elite markets into dynamic public revenue will allow it to be reinvested in the economy through technological innovation, education, benefits for working Americans, and desperately needed infrastructure projects.

Only broadly distributed wealth in the hands of many citizens—rather than stagnant capital hoarded in the hands of a few—can build a strong economy, produce good work, and yield democratic politics.

One of the prime arguments—from both Republicans and elite Democrats—against heavily taxing the wealthiest 1 percent of citizens is that it would place an unfair burden on them.

First, one could argue that most of the means by which those members of the 1 percent came to hoard such vast wealth was itself not fair. They inherited it, they were in the right place at the right time, they exploited the labor of those less privileged, they evaded their civic responsibility to contribute public revenue, they exploited gaps in an under-regulated market, they exploited government-funded research and development, they closed off markets with monopoly, they cheated competitors, customers, or regulators, they exploited public externalities, their losses were socialized while they privatized their profits, and so forth. Therefore, removing a significant bulk of their unfairly hoarded wealth would not itself be an unfair action.

A common—yet fairly irrefutable—example of this unfair distribution is executive pay. The average CEO makes 380 times that of the average employee. If the market values people fairly, and distributes wealth fairly, this suggests the average CEO is 380 times smarter, harder working, and more talented than the average employee. The average employee’s IQ is around 100. So, if this wage gap is fair, we can assume the average CEO’s IQ must be around 38,000 (for context, Einstein’s was probably around 160). So, one would be forgiven for concluding we must be living in an age of super brilliant corporate demigods. (What a time to be alive.) The average employee works at least forty hours per week. Perhaps the average CEO supergenius has discovered means by which to bend spacetime to achieve a workweek of 15,200 hours, despite us mortals living a mere 168 hours in a week. Liberal math has yielded equally reasonable conclusions before.

By all measures of commonsense—and assuming we do not currently live amongst corporate management deities—we must acknowledge that the average CEO is not worth 380 times the average employee, yet they are compensated as if they are. This is not fair. Extreme wealth inequality is simply not the result of fair distribution of wealth.

But let’s descend into the wild utopia of contemporary economic fancy and say inequality is fair and the wealthiest entirely or mostly earned their extreme wealth, fair and square. Even so, we still need to tax it heavily if we want democracy and a functional market economy (though, in the latter case, we may reasonably not want that). It does not matter if heavy taxation on extreme wealth is fair. It does not matter if extremist libertarians are right and taxation is theft. High wealth taxation is simply necessary for a functional economy and democracy. If we want to have a functional economy and democracy, then we simply must have very high taxation on extreme wealth. There is no alternative.

We must either acknowledge that 1 percent of Americans hoarding more wealth than the other 90 percent is unfair and then put in place fair taxes. Or, we accept that this inequality is fair, but we still have to reduce it anyway for the good of the country, economy, and democracy, even if that means instituting high taxation on extreme wealth. Either way, we need very high taxes on the very wealthy.

Many progressive commentators would say that this kind of extreme wealth tax—the kind we saw in the wake of World War Two of, say, 90 percent or higher on upper incomes—is politically unfeasible. But to give up on this goal of extreme wealth taxation is to give up on democracy. To say it’s too difficult politically, to say it’s unrealistic, is to say that democracy is too difficult politically, democracy is unrealistic.

Maybe it is.

But what’s certain is that any viable elected official, candidate, community leader, or thinker who claims to believe in the importance of democracy and who enjoys a stable economy, must acknowledge the necessity of a very high wealth tax, and pursue it zealously.

Those who still cling to the idea that we need not impose heavy taxation on extreme wealth ought recuse themselves from participating in conversations on these matters, or face irrelevance. Any serious political movement must either make this aim central to its platform or accept the demise of democracy.