Why our democracy keeps giving us economic royalism

The latest Buffalo pro football sensation is the player with the $50 million contract in a town that’s been told to plug another $100 million into Ralph Wilson Stadium. The $50 million for the player will come out of the regional economy and get shipped off to wherever the player is domiciled, less some New York State income taxes and some local charity. The $100 million will come from Erie County taxpayers, just as today’s $7 million-plus annual Buffalo Bills subsidy comes from Erie County taxpayers.

Serious analysts have for years pointed out that pro sports franchises, with their footloose mercenary players and their faraway owners, take more than they add to local economies—especially in markets where taxpayers buy the stadiums, the scoreboards, the traffic cops, and the maintenance, and forgo the parking and logo revenues, as we do here. Local arts groups, by contrast, recirculate subsidies because their oboists and set designers live locally. Amateur sports keep spending local. Ditto college sports. A Detroit-based team with California, Texas, Memphis, and New York players exports Buffalo money, just as the Omaha-owned daily newspaper does.

But with a regional economy worth about $45 billion, and with adjusted gross income in Erie County coming in at about $18 billion for 2008, the last year for which we have records, a couple more million bucks spent on spectator sports won’t kill anybody, though the money might as well be burned in a trash barrel for all the good it’s doing the region.

That said, ours being a region where over 70 percent of the households report less than $50,000 in annual income, and over three-quarters of households bring in less than the New York State median income, any big public outlays for anything that doesn’t raise those incomes should get a hard look. Income inequality has been a reality forever, of course. But reading Emmanuel Saez’s updated version of his study “Striking it richer: the evolution of top incomes in the United States,” it’s very hard to feel good about our regional conversation, much less our national one, in which support for spending tax dollars for college tuition, teacher pay, clean water, and public transit takes amazing political courage, while no politicians, and thus not very many taxpayers, dare question the subsidies for team owners and their star performers.

Saez’s new findings should simply piss you off if you live in a place like Buffalo and make less than $350,000 a year, which is the cutoff for membership in the top one percent today. Saez’s new study found not only that the top one percent have always had an outsize share of total national income. He also found that, in the first year of America’s recovery from the global financial crisis of 2008, the top one percent captured 93 percent of all the income gains.

That has left crumbs for the 99 percent. Stated another way, American incomes went up about 2.5 percent in the first year of recovery. The top one percent gobbled up all but 0.2 percent of that gain. And it turns out that most of those remaining crumbs went not to the median-income households like the few here that are actually at the median income, but rather, to the near-rich—the almost one percenters. The one-percenter wannabes.

Around here, we are a bit constrained by the age of our data. But we do know that in 2008, of the 410,000 income tax returns that were filed in Erie County, New York State data (which are organized a bit differently than the IRS data) show that there were about 5,500 filers who claimed incomes over $250,000, which means that a little over one percent of our neighbors took in one out of seven dollars of income around here. What’s eye-catching, though, is that there are the merely prosperous—the folks who make between $250,000 and $500,000—and then there are the much-more-than-prosperous: the ones who make more than $500,000 a year. The 1,682 tax-return filers who reported incomes over $500,000 in 2008 made almost twice as much as the people reporting more than $250,000 but less than $500,000. And the over-$500,000 group is not even half the size of the $250,000 to $500,000 group.

Saez’s study of what happened in 2009 and 2010 is part of a much bigger historical work that shows the income-concentration trends of the George Bush and Barack Obama presidencies as eerily, creepily similar to the Warren Harding-Calvin Coolidge-Herbert Hoover era, which ended abruptly with the Crash of 1929 and then the Great Depression.

Nowadays, though, other voices tell us not to worry. The stock market has doubled its gains in the past year. Apple declared a dividend after rising from $85 a share three years ago to $600 today. The Gross Domestic Product is inching upward. But Saez’s analysis is precisely the cold water that should chasten the upper-middle class that thinks that it, too, is doing fine. I have always marveled at the macro-economists who get giddy when Gross Domestic Product blips up—because they seldom concern themselves with who it is that is getting the dough. Who gets, and who doesn’t, matters. That’s why back in 1985, when Citizens for Tax Justice sought to explain the need for taxing what we then thought were the outrageous untaxed sums that speculators and major corporations were taking in, we handed out easy-to-understand facts, in button form, that explained it simply. In 1985, we wore buttons that said “I pay more taxes than General Electric.” In 2012, Warren Buffett said it simply, too: that his tax rate is lower than his secretary’s. The upper-middle class used to understand this stuff, which is one of the reasons why they broke from George Bush and embraced Bill Clinton.

But here’s the trend: The richest one percent took in 45 percent of all the Clinton-era gains, 66 percent of all the Bush-era gains, and 93 percent of all the Obama-era gains. And under Obama, there are 15,600 households—the richest one-tenth of one percent—that took in almost four out of every 10 new dollars of income, leaving only five for the rest of the one percent, and less than one of every 10 new dollars for the 99 percent. That’s bad, but it could get much worse if the Bush-era Republican ethos of cutting or eliminating the estate tax is empowered in the 2012 elections. The estate tax is the one remaining bulwark against the reconstitution of a permanent or at least multi-generational economic royalty, and our new political consensus—unless somehow labor-supporting Democrats retake the House of Representatives and the Senate both—seems to be that that would be okay. Much more likely in 2012: that Republicans and Republican-oriented Democrats will get elected again. And that may well occur because the near-rich, here and all around the rest of America, are evidently still feeling like they’re almost there with the big guys.

Truth that doesn’t liberate

The mere fact of Saez’s analysis getting so much media attention is no guarantee of his analysis becoming politically relevant. And Saez is neither unique nor new in his focus. The Congressional Budget Office used to show their data only in “quintiles,” which means whacking up Americans into five groups. In the early 1980s, at the insistence of some wonks who started seeing some households getting hugely richer than even the top fifth, the CBO and the other Congressional committees started asking their staff to get a little more specific. The top 20 percent got broken into pieces: the top one percent, the top two percent, the top five percent, the top 10 percent. Suddenly, differentiating between the truly, super, uber-rich and the merely prosperous began showing how different the outcomes were, not only of tax policy, but of every other government action (or inaction) as well.

Policy got shaped because of that analysis. There was a recognition in 1985 that most of the income of the top one percent came not from wages or salaries, but from capital gains—the profits one makes on the sale of stocks or other assets. There was a long-standing Democratic tradition of progressivity (it used to be a bipartisan consensus, until shortly before Ronald Reagan became president) that people whose incomes were higher should pay taxes at a higher rate. Thus in the Tax Reform Act of 1986, even though the top tax rates were much lower than before, it was a crucial, monumental change when capital gains were taxed at the same rates as income from work. It was as if Teddy Roosevelt’s version of Progressive-era Republicanism was briefly reborn. Riches weren’t being punished, not with a top tax rate of 28 percent compared to previous years, when the top marginal rate was generally well over 50 percent. But an older notion of equity was, briefly, re-established.

But the tax issues were soon marginalized, because strange new forces were at work, making old notions of equity not only inoperative, but politically ridiculous. All during the 1990s, Kevin Phillips wrote books like The Politics of Rich and Poor and Arrogant Capital and others describing the pernicious effect of the new, accelerating income polarization that huge CEO salaries, globalization and financial speculation were making happen. David Cay Johnston won a Pulitzer Prize writing about the tax-policy outrages that Citizens for Tax Justice had exposed, and also about the breathtakingly bold theft of public resources by tycoons savvy enough to buy the right lobbyists. Paul Krugman, the Nobel Prize-winning author of Conscience of a Liberal, began hammering away on these issues in his twice-weekly New York Times column. And since then, a whole cohort of liberal chatterers like Ed Schulz, Rachel Maddow, Stephanie Miller, and Dylan Ratigan daily echo and amplify these Phillips and Krugman and Saez studies. Liberal critics of the new economics of the one percent are now themselves best-selling authors and highly compensated talkers.

But notwithstanding all that talk, the trendlines in American household incomes haven’t changed. That’s because the American political class of both parties has not only not changed American tax policy, but has also dramatically tilted the board to favor financial speculators, and a few favored professions, over everybody else.

It was Bill Clinton and Democratic leaders who signed off on everything that CTJ, Phillips, Johnston, Krugman, and the talk-ocracy criticize, including, in Clinton’s last year in office, the dismemberment of the Glass-Steagall Act of 1933 that had previously prevented banks from becoming speculators. Democrats are complicit with Republicans in having erected a political economy that empowers the top one percent. And to do it, they’ve needed the political help and the ideological buy-in of Americans not only of the one percent, but also, and most critically, of that slice of the public that is just under the one percent—the people whom Saez seems to be referring to when he uses the phrase “the working rich.”

This new class is indeed a political innovation. The consensus that joined 20th Century Democrats Roosevelt, Truman, Kennedy, Johnson, and Carter, and Republicans Eisenhower, Nixon, and Ford, was all overturned by Ronald Reagan and his follow-on version of what Bob Kuttner called “the revolt of the haves.” Arguably the most potent aspect of the Reagan Revolution was to make conspicuous consumption culturally acceptable, thus dooming old WASP behaviors that exalted herringbone, weathered cottages, and unflashy Detroit cars in favor of a new consumerism of McMansions, German iron, and designer labels. The cognitive elite of these hard-working “near-rich” may eschew bling, but it’s impossible not to see the radical sorting that has occurred even within the professional classes, and with it, an ideological sorting. The new phenomenon is that the cognitive elite—the physician specialists who make $400,000 a year, the senior professors who make $150,000 and have unimaginably big pension funds, the senior attorneys pulling down $300,000 in partnership income and corporate board fees, plus, of course, the fast-food franchisers, the car dealers and the endless species of the genus Consultant—all now imagine that their interests, and America’s, are the same as those of the one percent.

And it’s the consumption patterns of the near-rich that sets the tone for the middle class.

What’s so striking about Emmanuel Saez’s analysis is that those folks, those near-rich, are shown to be, well, losers just like the rest of the 99 percent. The real constituency for the Rick Santorum message of Reaganism Reborn, as it is for Mitt Romney’s message of economic “competence,” is the folks who feel that Obama’s very, very timid attempt to channel the FDR-Ike-LBJ-Nixon consensus is not only not for them, but that it’s a problem for them. The physicians whose skills give them some fleeting bargaining power with insurance companies tut-tut about unions in a curious echo of Jazz Age business sentiments, and applaud Caterpillar’s decision to build a new plant in right-to-work Indiana where they can pay non-union workers $12 an hour, as if an impoverished working class is preferable to one with health insurance, pension security and some prospect of purchasing an occasional ticket to an NFL game.

Pity, that. There are so very many smart lawyers and high-earning doctors and learned professors who simply do not understand that scholars like Saez are describing a trend that has gone very, very much farther than even the critics of the Bush era complained about. Even if Obama is re-elected, the prospect of more and more widespread defeat of expectations for the 99 percent is growing. Too many of the jobs in the post-2010 economic recovery are temporary and provisional jobs—in an election year that will see two of the rare pro-worker laws ending, as both extended unemployment insurance coverage and the miniscule payroll tax cut both expire at the end of 2012. But will the Bush-era tax cuts on high-income individuals be allowed to expire? Will Obama’s proposed surcharge on millionaires be enacted? Don’t count on either. Do, however, count on the willingness of the near-rich to continue to believe that they are immune from what ails the 99 percent. That’s why it is very unlikely that any tax policy, any trade policy, any regulatory policy, or any policy on income support, health insurance, or worker training will vary much farther than the way that the near-reach can imagine it today. No single-payer system, no permanent income-guarantees, no European-style social safety net is possible so long as the near-rich remain confused about who their allies are.

Bruce Fisher’s new book is Borderland: Essays from the US-Canada Divide, available at bookstores or at www.sunypress.edu.