Why taxing the rich & corporations is not the only step we need to take – reversing the top-down class warfare

Many on the left are calling for increasing taxes on the rich and corporations to fund the government while reducing the burden on most Americans. Famously, Warren Buffett, the gnome of Omaha and a multi-billionaire, has complained that his effective tax rate is lower than his secretary’s. Trump and his billionaires have made great strides in reducing the tax burden on the rich and corporations at the expense of the vast majority of Americans. So, yes, increasing taxes on the rich and corporations is an essential step towards undoing the past fifty years of American tax policy.

However, this is just one element of what needs to be done to create a more equitable and sustainable economy. We need to correct the changes in the laws and regulations that created this situation.

The Fifty-year Campaign by the Rich and Corporations to Rig the Economy for their Benefit

The rich and corporations were never happy with the bargains they were forced into by the Great Depression and its aftermath. So, in the 1970s, they began a persistent, well-financed campaign to remake the US economy (and much of the world’s economies). This is typically referred to as free-market capitalism or neoliberalism. Skipping forward fifty years, we can identify several structural changes that have collectively produced the enormous income and wealth inequalities that we now consider a natural feature of our society.

The rich and corporations dominate the election process by funding both the Republican and Democratic parties and extending their influence through a network of lobbyists in Washington. Lobbyists ensure that the interests of the rich and corporations are carefully protected through legislation and regulations. There are 435 members of Congress and 100 Senators. In 2021, there were 12,136 registered lobbyists in Washington, supported by over $3.73 billion used to influence legislation and regulations. This amounts to $6,972,000 and involves 23 lobbyists per legislator.¹

Key Legal and Regulatory Changes

Some of the changes in economic laws and regulations between 1980 and today include:

• Deregulation of industries (trucking, airlines, telecommunications, banking and financial services)

• Weakened enforcement of antitrust (anti-monopolization), pro-competition regulations

• Financial deregulation (repeal of Glass-Steagall, deregulation of derivatives and other speculative financial intruments).

• Legalization of stock buybacks.²

• Tax cuts for the rich and corporations.

• Welfare cuts to reduce government assistance.

• Global trade and finance liberalization (NAFTA, WTO).

• Weakening of labor laws and union influence.

The Changes in the Economy Driving Income and Wealth Inequality

These changes in laws and regulations led to the following structural shifts, which are driving the surge in income and wealth inequalities.

Market Concentration (Monopolization)

Today, the US economy is highly concentrated in almost every market segment. This means that three or four companies control more than fifty percent of a market. To list a few: airlines, rental cars, beer, grocery stores, eyeglasses, hearing aids, toothpaste, cell phone service, beef, chicken, pork, fire engines, social media, smartphones, railroads, tobacco, ship building, and more.

Monopoly companies can engage in five anti-competitive practices that harm consumers and suppliers. First, they can raise prices without fear of competitors. Second, they can pay workers less because workers have fewer choices of places to work. Third, they can force lower prices on their suppliers, and this, in turn, cascades lower wages for their workers. Fourth, they can inhibit or crush competitors trying to enter their market. Fifth, they inhibit innovation and choice for everyone.

Globalization

The rich and corporations employed both the Republican and Democratic parties to negotiate multiple international treaties that broke down barriers to the free flow of goods, services, and capital throughout the world. This led to a mass exodus of high-paying US jobs to low-wage countries around the world.

Decline in Unionization

In the 1960s, approximately thirty-five percent of the workforce belonged to unions. By 2000, only ten percent did, mostly government employees. This reduced the capacity of individual workers to negotiate higher wages. This also removed the wage floor that the union-negotiated wages had created throughout the economy.

Increase in the Size of the Finance Sector

he growth of the finance sector has been substantial. In 1950, it accounted for approximately 4.5% of the economy, whereas today it exceeds 8.5%. Its share of profits is disproportionately high, at 26% of all corporate profits.³ In 2020, global financial assets reached $469 trillion, compared to a global GDP of $96 trillion in products and services. This is an industry that provoked a global financial crisis in 2008 because of its speculative, risky behaviors, which required $trillions in government bailouts to keep it afloat. The well-known socialization of private risk.

Financialization of Corporations

Before the 1980s, traditional corporate management focused on long-term strategy, developing and retaining employees, and performing tasks that created value for customers, suppliers, and employees. Creating new products and services was a key corporate activity considered essential for successful management, which thrived by creating conditions that allowed employees to be effective, learn new skills, and grow in the workplace. The main belief was that sales and profits would increase if these tasks were done well.⁴

Starting in the early 1980s, with the rise of the neoliberal movement, a major change occurred in how management success was defined. The only goal of a corporation was now to maximize profits for shareholders. Financial incentives, stock options, and performance bonuses were introduced to align top management with the aim of transforming companies from focusing on making goods and services to generating the most money in the shortest time. This change in corproate objectives has led to huge payouts to shareholders and top management, reduced wages and benfits for workers, a significant shoft from full-time employment to contract workers, the gig economy, and the shattering of the longer-term relationship between a company and its employees.

The Flatlining of Most Workers Incomes over the Past Fifty Years

These changes in the economy have lead to wages barely rising over the past fifty years. for people in the bottom sixty percent or so of the workforce, real wages (inflation adjusted wages) have risen only sixteen percent between 1975 and today. This in an economy where, in total, output per capita has grown 115 percent over that period!

Reversing the Top-Down Class War of the Rich and Corporations

Here is a list of the broad topics that would be in a progressive agenda for change:

• Precursor initiatives. Address the control of government by the rich and corporations
• Democratize the economy
• Return the economy to the production of products and services, not extracting money
• Directly address income and wealth inequality
• Social policies – stronger support for families, education, healthcare, retirement….
• Redirect national attention to the long-term problems we face

You can see this progressive agenda fleshed out in my earlier post:
“A Progressive Agenda for the US Economy – undoing the last fifty years of rule by the rich and corporations”

1. In 1975, there were 1,172 lobbyists registered in Washington—roughly 3 lobbyists per legislator.
2. A stock buyback occurs when a company uses its own financial resources to buy its own shares on the market. The reduction in the number of shares outstanding in the market produces a rise in the price of the remaining shares.
3. See https://www.bea.gov/tools for data sources.
4. See Peter F. Drucker, The Effective Executive (HarperCollins Publishers, 1966); Peter F. Drucker, “Managing Oneself.,” Harvard Business Review 77, no. 2 (March 1999) 64–74; Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business (Belknap Press, 1993); Alfred D. Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Belknap Press, 1994).